IN  MEMORiAM 
BERNARD  MOSES 


IjXm 
ELEMENTS 


POLITICAL   ECONOMY 


BY 

ARTHUR  LATHAM  PERRY,  LL.  D., 

ORKIN   SAGK  PKOFESSOR  OF   HISTORY   AND  POLITICAL  ECONOMY   IH 

WILLIAMS    COLLKGK. 


Quid  pro  quo. 


THIRTEENTH    EDITION,    REVISED. 


NEW   YORK; 

SCRIBNER,  ARMSTRONG,  AND  CO. 

1875. 


/y/3/6/ 


Enfered,  according  to  Act  of  Congress,  in  the  year  1873,  by 

Arthur  L.  Perry, 

In   the  Office  of  the  Librarian  of  Congress,  at  ^VashiKi^fie 


BERNARD  MOSES 


RIVERSIDE,  cambhidoe: 

STEREOTYPED    AND    PRINTBD     ST 
a.    O.   HOUGHTON   .\ND    COMPAMV 


To 

MY  ONLY  BROTHER, 
BAXTER  EDWARDS  PERRY,  Esq., 

OF   BOSTON, 
WHOSE    FAITHFULNESS  TO  HIS   CLIENTS  IS  ONLY   SUIIPASSED  BT 
HIS  KINDNESS  OF  HEART, 
IS 

Cijt'ij  (Qtiition  ai  mp  Maafi 

FRATERNALLY  INSCRIBED, 


885993 


TABLE   OF    CONTENTS. 


CHAPTER  I. 

PAQE 

On  the  History  of  the  Science 1 


CHAPTER  11. 
On  the  Field  of  the  Science       ......    42 

CHAPTER  in. 
On  Value 56 

CHAPTER  IV. 
On  Exchange 103 

CHAPTER  V. 
On  Production 118 

CHAPTER  VI. 
On  Labor    .  .        .  134 

CHAPTER  Vn. 
On  Capital •        .        .  168 


VI  CONTENTS. 

CHAPTER  VIII. 
Ok  Land ,       ^  1 


CHAPTER  X. 
On  Monet 


PAGE 


CHAPTER  IX. 
On  Cost  of  Pboduction 210 


229 


CHAPTER  XI. 
On  Currency  in  the  United  States 32o 

CHAPTER  XII. 
On  Credit ..* ^^2 

CHAPTER  XIII. 
On  Foreign  Trade  ... 

CHAPTER  XIV. 
On  the  Mercantile  System   .        .        .        .        .       ,        ^  ^j. 

CHAPTER  XV. 

0»  American  Tariffs  .        . 

•••'«.  490 

CHAPTER  XVI. 

On  Taxation 

515 


ANALYSIS   OF   CHAPTERS. 


CHAPTER  I. 

ON   THE    HISTORY   OF    THE   SCIENCE. 

PACE 

A.  Definition  of  the  science 1 

B.  Its  basis  and  mode  of  development  .....  1 

C.  Its  history 2 

a.  Oriental  traffic.     Abraham 2 

b.  Hints  in  Homer,  Ezekiel,  Nahum,  Herodotus    .        .  3 

c.  Greek  opinions 8 

(1)  Xenophon's   "  Ways   and  Means,"  and  "  House- 
holder"           4 

(2)  Plato's  "  Republic  " 5 

(3)  Aristotle's  "  Economics,"  "  Politics,"  "  Ethics  "       .  6 

(4)  Three  reasons  why  Greeks  did  not  develop   this 
science 8 

(5)  Their  practical  rules  were  good          ...  9 

d.  Roman  opinions  .         .         .         .         .         .         .         .  ,  10 

(1)  Cicero's  "  De  officiis  " 10 

(2)  Cato,  and  the  Moralists 10 

(3)  Two  reasons  for  their  views        .         .         .         .  10 

(4)  Liberality  of  Roman  laws  of  property  .  .  .11 
e  Middle-age  opinion.  Religion  and  the  Universities  .  13 
/.  The  Bullion  Theory,  and  its  policy  .  .  .  *  .  14 
g.  The  Mercantile  System x  T 

(1)  Its  origin        .         .                  17 

(2)  How  defended  .                  18 

(3)  The  Balance  of  Trade 19 

(4)  Nations  that  adopted  it 21 

A.  Recoil  from  the  Mercantile  System      .        .        .        .22 


Vlll 


ANALYSIS   OF  CHAPTERS. 


Outline  of  the  labors  of  its  opponents       .         .  23 

(1)  English  writers      .....••  ^3 
(a.)  The  pamphleteers       ,         .         .  *      .        .  23 

(6.)  John  Locke 24 

(c.)  David  Hume 25 

(d.)  Adam  Smith 26 

(e.)  Malthus,   Ricardo,   McCulloch,    Senior,   Mill  29 

(/)   The  Bullion  Report  of  1810      .         .         .  30 
(g.)  Henry  Dunning  Macleod       .         .         .         .31 

(2)  French  writers 32 

(a.)  Quesnay,  The  Physiocrats,  Agricultural  Sys- 
tem           33 

(h.)  Condillac 33 

(c.)  Say 34 

{(I.)  Bastiat 85 

(e)  Chevalier 36 

(3)  Italians.     Genovesi 37 

(4)  Germans.     Zoll-Yerein,  List,  Stein,  Rau        .  38 

(5)  Americans.     National  interest  in  the  subject      .  39 

(a)  Secretaries  of  the  Treasury      .         .         .  39 

(b)  Congressmen.     Commissioner  Wells     .         .40 

(c)  A  partial  list  of  writers     .         ...  40 

(d)  Henry  C.  Carey,  Walker,  Bowen         .         .  41 


CHAPTER  H. 

ON   THE   FIELD    OF    THE    SCIENCE 

A.  Definition  of  a  science 

B.  First  grand  condition  of  a  science 

C.  Induction  and  deduction  explained 

D.  Lord  Bacon's  methods    . 

E.  -Experience  and  feigned  cases     . 

F.  Second  condition  of  a  science 

G.  Physical  and  Moral  Sciences 
a.  Economy  in  one  sense  moral 
h.  In  another  sense  not 
c.  Its  points  of  contact  with  morals 

H.  It  is  a  political,  i.  e.  a  social  science 

a.  Men  in  isolation  not  amenable  to  it 

b.  God  made  men  for  society      . 


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ANALYSIS   OF  CHAPTERS. 


IS 


c.  God  the  author  of  economical  laws   . 

d.  Man  in  isolation  weak,  in  society  strong 

e.  Provisional  view  of  the  gains  of  exchange 
Some  leading  definitions  of  the  science 

a.  The  word  wealth  useless  as  a  scientific  term 

b.  First  reason  of  slow  progress  in  the  science 

c.  Condillac's  or  Whately's  definition   . 

d.  Value  is  a  relative  word 

e.  Second  reason  of  slow  progress 
/.   Other  possible  broader  sciences 


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CHAPTER  III. 


ox   VALUE. 


A..  Value  not  a  quality  of  one  thing 

B.  Origin  of  the  word  value      .         .         .         .         . 

C.  It  implies  a  kind  of  comparison 

D.  Two  persons  and  two  owners  required  to  fix  value 

E.  An  action  of  exchange  required 

F.  Value  of  the  pencil  in  cents  .... 

G.  Exigencies  of  language 

H.  The  value  of  anything  always  stated  in  terms  of 

thing  else 

I.  The  motives  to  an  exchange    .... 

J.  The  simplest  case  of  value 

K.  The  ultimate  definition  of  value 

L.  Only  six  cases  of  value  possible    .... 

M.  Ownership  is  always  mutually  transferred 

N.  Value  best  studied  through  the  term  services 

O.  Distinction  between  service  and  commodity 

P.  Macleod's  definition  of  value  .         .         .         • 

Q.  Definition  given  satisfactory,  because 

a.  It  covers  anomalous  cases         .... 
(1)  Analysis  of  services  exchanged     . 

b.  It  expands  the  field  of  value  to  its  true  limits   . 

c.  It  separates  the  notion  of  value  from  matter 

d.  And  from  some  obstinate  illusions  of  language 

e.  And  discriminates  utility  from  value     . 

(1)  Utility  is  free  and  ultimate 

(2)  Value  is  mediate,  and  involves  effort     . 


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X  ANALYSIS   OF   CHAPTERS. 

(3)  Utility  is  usually  a  common  factor      .         .         ,         85 

(4)  And  is  eliminated  from  influence  on  value  .     85 
/.  Mistakes  from  confounding  utility  with  value     .  86 

R.  Value  a  different  thing  from  price 87 

a.  Numerical  illustrations     ......  88 

h.  Effect  of  improvements  on  value          .         .         .  .89 

S.  No  perfect  measure  of  value  attainable         ...  90 

T.  Tvin-.itations  of  value  in  the  two  elements  of  efforts  .  .92 

U.  Limitations  in  the  two  elements  of  desires    ...  94 

V.  Equation  of  supply  and  demand 9G 

W.  Every  rise  or  fall  of  demand  tends  to  check  itself         .  98 

a.  Through  a  consequent  rise  or  fall  of  value  .         .  .98 

h.  Through  action  on  supply    V  .         .         .         .  99 

X«  Three  classes  of  services  in  the  law  of  their  value  100 

a.  Those  augmentable  without  increased  difficulty         .  101 

&.  Those  augmentable  through  increased  difficulty    .  101 

c.  Those  not  augmentable  at  all         .        .        .        .  102 

CHAPTER  IV. 

ON    EXCHANGE. 

A.  Principles  of  human  nature  involved  in  exchange  .         .103 

B.  Society  a  hive  of  buyers  and  sellers    .         .         .         .  104 

C.  God's  will  as  indicated  in  diversity  of  natural  gifts  .  105 

D.  Association  and  individuality 106 

E.  Interest  the  sole  motive  in  exchange       .         .         .         .107 

F.  All  exchange  depends  on  diversity  of  relative  advantage  1^8 
a.  Illustration  of  the  tailor  and  blacksmith  .  .  108 
&.  The  greater  the  diversity  of  relative  advantage,  the 

more  profitable  exchanges  become         .         .         .109 

G.  Freedom,  association,  invention,  essential  to  just  diversity     109 
H.  The  right  to  free  exchange  a  natural  right  .         .  110 

I.  Governments  formerly  interfered  with  it         .         .         ,110 

a.  And  thereby  destroyed  natural  gains       .         .         .         Ill 

b.  And  barred  a  natural  progress   .         .         .         .         .111 
J.  But  latterly  have  conceded  it  within  home  boundaries     112 

a.  Illustration  from  Napoleon's  policy     .         .         .         .112 
K.  Opposed  to  free  exchange  are  monopolies  .         .         .         113 
a.  Arbitrary  prohibitions  on  the  sale  of  home  services    .     113 
h.  Arbitrary  restrictions  on  the  admission  of  foreign  ser- 


vices 


Hi 


ANALYSIS   OF   CHAPTERS. 


XJ 


Patents  and  copyrights  unobjectionable  monopolies 


L.  The  tbree  great  points  of  struggle 


116 
117 


CHAPTER  V. 


ON    PRODUCTION. 


c. 

D. 
E. 


G 


Laws  of  Political  Economy  are  cheering 
Definitions  of  "  Produce,"  "  Producer,"  "  Product 

a.  Similar  meaning  of  the  Latin  producere 

b.  Inadequate  analysis  of  Adam  Smith     . 
Definition  of  "  consume,"  etc. 
Are  producers  better  than  consumers  ?      . 
The  beneficent  law  under  4)roduction  . 

a.  Illustration  of  the  mill 

b.  Illustration  of  the  loom  .... 

c.  Illustration  from  agriculture 

d.  Tendency  towards  a  common  right  in  inventions 
Effect  on  values  of  Nature's  help  in  production 

a.  Illustration  of  the  gloves 

b.  Motive  to  introduce  machinery  . 

c.  Commodities  decline  in  value  relatively  to  labor 
A  general  glut  of  products  impossible     . 

a.  Proofs  of  the  proposition 

b.  Dr.  Chalmers'  fallacy  .... 

c.  Each  interested  in  the  welfare  of  all 

d.  Law  of  partial  gluts 

e.  Production  demands  intellectual  attainments 
H.  Production  increased  by  Division  of  Labor     . 

a.  Example  of  the  pins       .... 

b.  Example  of  the  watches     .... 

c.  Advantages  of  the  division  of  labor 

(1)  Improved  dexterity      .... 

(2)  The  saving  of  time  .... 

(3)  The  invention  of  tools 
Less  waste  of  material 
More  economical  distribution  of  labor 
A  saving  in  the  use  of  tools 
The  advantages  of  wholesale  and  retail 

Disadvantages  of  division  of  labor 

(1}  Monotonous  work  becomes  irksome     . 


(4) 
(5) 
(6) 
(7) 


d. 


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jrii  ANALYSIS   OF   CHAPTERS. 

(2)  Tendency  to  dwarf  the  powers        .        .         .        131 

(3)  Undue  dependence  of  the  workmen  .         .132 
e.  Limitations  to  the  division  of  labor          .  •         132 

(1)  From  the  extent  of  the  market   .        .         .        .132 

(2)  From  the  nature  of  the  employment        .        •         1*^3 

CHAPTJeR   VI. 

ON   LABOR. 

A    Physical  labor  consists  in  moving  things      .         .         .         134 
a.  Some  illustrations  of  this    . 

B.  Physical  labor  defined         .         .         •         .         . 
a.  Nature  helps  gratuitously  in  production 

C.  Men  have  found  helps  in  producing  motion 

a.  The  domestic  animals 

6.  The  weight  of  water  and  force  of  wind 

c.  Steam 

d.  To  apply  these  capital  is  needed    .... 

e.  Labor,  power-agents,  capital  cooperate   in  material 
production 

D.  The  technical  definition  of  labor         .... 

E.  Principles  of  the  remuneration  of  labor 

a.  Distinction  between  skilled  and  common  labor 

b.  A  natural  monopoly  unobjectionable  . 

c.  Reward  of  skilled  labor  higher       ... 

(1)  From  the  scarcity  of  appropriate  original  gifts 

(2)  From  the  lack  of  requisite  industry 

(3)  From  the  lack  of  suitable  training 

F.  The  law  of  supply  and  demand  the  law  of  wages 

G.  But  this  law  as  modified  through  supply  by 

a.  The  agreeableness  of  the  employments  . 

b.  The  easiness  of  learning  them    .... 

c.  The  constancy  of  work  in  them 

d.  The  amount  of  trust  involved     .... 

e.  The  probability  of  success       .... 
/.  Custom,  prejudice,  and  fashion  .... 
g:  Legal  restrictions  and  voluntary  associations  . 

H.  Demand  for  labor  how  constituted 

a.  By  the  presence  of  capital     .... 

b.  The  more  capital  the  stronger  the  demand 


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ANALYSIS   OF   CHAPTERS.  -    XIU 

c.  Wages-fund  a  dividend ,         151 

d.  Number  of  laborers  a  divisor      .         .         .  .         ,151 

e.  The  average  rate  of  wages  the  quotient .        .  .        152 
I.  Popular  remedies  for  low  wages  ineffectual     .  .         ,153 

a.  Government  cannot  act  directly      .         .         .         ,        153 

b.  But  may  indirectly  and  beneficially     .         ,         .        .155 

c.  Public  opinion  may  be  useful  ...  .156 

d.  The^Malthus  law  of  population 157 

(1)  No  natural  antagonism  between  fecundity  and 

food     .  - 158 

f.  Strikes  are  futile 158 

(1)  Are  false  in  theory 159 

(2)  Are  pernicious  in  practice 161 

(3)  Illustrations  of  this 162 

(4)  Workmen  and  capitalists  are  copartners       .         ,163 

(5)  The  classes  shade  into  each  other  .        .         164 

(6)  Poor  money  a  foe  to  laborers    .        .        .        .164 

(7)  Mind  must  be  interested        .         .         .         .         165 
/.    Cooperation  nothing  new  in  principle       .         .         .165 

(1)  Legislation  has  narrow  limits  in  economy      .         166 

(2)  Should  give  equal  rights  to  capital  and  labor    .     167 

CHAPTER  Vn. 

ON    CAPITAL. 

A.  Relations  of  capital  to  labor  and  power-agents         .         168 

B.  Derivation  of  capital 168 

a.  Its  definition 169 

b.  Some  distinctions     .         .         .         .         .         .  .169 

c.  Mr.  Carey's  definition  faulty         .         .         .         .  169 

d.  Distinction  between  capital  and  other  property  .     1 70 

C.  How  capital  arises 171 

a.  Origin  of  tools 172 

b.  Progress  in  tool-making 173 

c.  Capital  brings  gratuitous  forces  into  play         .         .  1 74 

d.  Talue  of  products  created  by  aid  of  capital  tends  to 

decline  relatively  to  the  value  of  those  less  aided 

thus 174 

e.  Power  of  capital  in  reproduction  .        .        .  1 75 

D.  The  remuneration  of  capital 1  ^^ 


XIV 


ANALYSIS   OF   CHAPTEES. 


a.  Definition  of  profits 

b.  They  spring  from  abstinence  .... 

c.  And  are  as  legitimate  as  wages  .... 

d.  Illustration  from  the  flax-factory      . 
€.  Illustration  from  ordinary  loaning 

f.  The  capitalist  creates  a  beneficent  fund 

g    Strength  of  the  motives  to  abstinence  depend 

(1)  On  liberty 

(2)  On  equality 

(3)  On  security      ...... 

E    Relations  of  capitalists  to  laborers  .... 
n.  No  antagonism  between  them 
6.  Dependence  of  capital  on  laborers 

c.  Dependence  of  laborers  on  capital 

d.  The  laborer  interested  in  the  increase  of  capital 

e.  The  capitalist  not  injured  by  high  wages  .  . 

F.  Mr.  Carey's  law  of  distribution       .... 

a.  Arithmetical  illustration  .... 

b.  Profits  the  leavings  of  wages      .... 

c.  Tendency  towards  equality  of  condition  among 

G.  Distinction  between  circulating  and  fixed  capital    . 

a.  Changing  proportions  between  those    -  . 

b.  Transformation  of  one  into  the  other 

c.  Corollaries  —  war  ..... 


men 


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CHAPTER  Vin. 

ON   LAND. 

A.  Best  test  of  a  generalization 188 

B.  Questions  of»land  have  been  vexed  questions  .         .  188 

C.  Means  at  hand  of  settling  them  .         .         .         .         .189 

D.  The  ground  principles 189 

E.  First  proposition 190 

a.  Ownership  came  in  under  work    .         .         .         ,  190 

b.  Lands  originally  valueless         .         .         .  .190 

c.  What  is  sold  is  not  the  inherent  qualities  of  the  soil  191 

c?.  Utility  and  value 191 

e.  Land  proprietors  cannot  sell  God's  gifts       .         .  192 

/.   Sources  of  value  in  land 193 

g.  Tlie  United  States  give  away  lands      .         .         .  194 


ANivLYSIS    OF   CHAPTERS. 


KV 


h.  The  English  companies  in  the  1 7th  century     . 
L   The  current  proverb  at  the  West 
j.   The  value  of  lands  like  all  other  values  . 
k.  Profits  an  element  in  lands  .... 
I.    Lands  under  a  poor  currency  .... 

E.  Second  proposition 

a.  Proof  of  it 

h.  Gradual  occupation  of  the  earth  in  consequence 

c.  Mr.  Carey  fails  to  break  down  this  law 

d.  His  own  law  not  inconsistent  with  this    . 

F.  Third  proposition   ....... 

a.  Exemplification  of  the  principle 

h.  Produce  rises  as  estimated  in  other  commodities 

G    Fourth  proposition 

a.  Ricardo's  law  of  Rent 

h.  The  truth  in  il 

c.  The  errors  in  it  .         ,         .  .         • 

d.  The  true  doctrine  of  rent       .... 
IJ    Fifth  proposition    ....... 

a.  Fee-simple  best,  and  reasons  why  . 
h.  Moderately  small  farms  best,  because 

(1)  The  motives  to  production  are  more  universal 

(2)  Better  supervision  is  thus  secured 

(3)  The  masses  are  better  educated 

(4)  National  strength  is  better  maintained 

c.  Illustrations  from  France        .... 

d.  Illustrations  from  England  and  Scotland     . 

e.  Illustrations  from  Ireland        .... 


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CHAPTER  IX. 

ON    COST    OF   PRODUCTION. 

A.  Is  there  such  a  thing  as  natural  value  ?       .         .         .  210 

B.  Foresight  important  in  production 211 

C.  Cost  of  production  sometimes  the  element  of  effort     .  211 

a.  Illustration  from  amputation 211 

h.  Illustration  from  knife-making         .         .         .         .  212 

D.  Cost  of  production  in  relation  to  improved  processes      .  213 

E.  Cost  of  production  made  up  of  two  elements       .         .  214 
a.  Cost  of  labor 214 


XVI  ANALYSIS  OF  CHAPTERS. 

b.  Cost  of  capital 214 

P.  c.  Cost  of  labor  made  up  of  three  elements   .         .  214 

(1)  Efficiency  of  the  labor 215 

(2)  Rate  of  nominal  wages 215 

(3)  Cost  of  the  wages-material       ....  215 
d.  Three  purposes  of  this  analysis          .         .         .         .215 

(1)  To  show  the  many  elements  in  commercial  calcu- 

lation    215 

(2)  To  explain  the  diversity  in  noniinal  wages           .  216 

(3)  To    explain    the    division   between   wages    and 

profits 219 

«.  Cost  of  capital  made  up  of  three  elements  .         .220 

(1)  The  rate  per  cent 220 

(2)  The  time  of  advance 220 

(3)  The  risk  of  deterioration  ....  221 
G.  Higher  cost  of  labor  ends  in  lower  profits  .  .  223 
H.  A  uniform  rise  or  fall  of  wages  does  not  affect  value  223 

I.  An  unequal  rise  or  fall  does  affect  it       ...         .  223 

J.  The  same,  mutatis  mutandis,  is  true  of  profits     .         .  224 

K.  Machinery  an  important  element  in  cost  of  production  .  224 
L.  Machinery  not  injurious  to  the  wages  of  labor,  because 

a.  Labor  is  required  to  make,  repair,  and  work  it  .         .225 

b.  It  cheapens  products  and  thus  widens  the  market  226 

c.  It  cheapens  products  used  by  the  laborers  .         .         .  226 
M.  Price  of  raw  materials  tends  to  approximate  the  price  of 

finished  products 227 

a.  Illustration  in  cotton  cloth 227 

6.  Illustration  in  lace 228 

N.  Two  branches  now  completed 228 

CHAPTER  X. 

ON   MONEY. 

A.  Money  can  be  understood ,  229 

B.  Inconveniences  of  barter 230 

C.  Money  an  invention  —  convenience  sake         .         .         .  231 

D.  Its  sole  characteristic,  a  generalized  purchasing-power  231 
a.  Value  in  a  book,  and  value  in  money     .         .         .  232 

E.  Money  economizes  labor 232 

F.  Brings  buyers  and  sellers  together      .                 ,        .  233 


ANALYSIS  OF  CHAPTERS  XVU 

G.  Generalizes  a  purchasing-power  in  point  of  time  233 

H.  Makes  it  portable,  divisible,  and  loanable   .         .         .  233 

I.  First  proposition 234 

a.  Meaning  of  the  word  medium         ....  234 

b.  Illustration  of  the  railroad  ticket         ....  235 

c.  Small  ratio  of  money  to  property   ....  236 

d.  Hume's  comparison 236 

e.  Money  a  generalized  capital 23*^ 

/.  The  amount  needed  determined  by  its  nature  as  a 

medium 23J 

g.  Rapidity  of  circulation  in  this  connection       .         .  240 

J.  Second  proposition 241 

a.  Explanation  of  the  word  measure  .        .         .         .  242 

b.  Relations  of  denominations  to  the  medium           .         .  243 

c.  Liability  to  error 244 

d.  French  system  of  weights  and  measures     .        .        .247 

e.  This  second  function  complicates  the  subject  of  money  248 
K.  Third  proposition 249 

a.  Different  materials  used  as  money      ,  ,         ,249 

b.  Gold  and  silver  are  the  best    ...                  .  249 

(1)  On  account  of  their  steady  value  .  .  .  249 
(a.)  On  account  of  the  steady  demand  for  them  252 
{b.)  Their  uniform  cost  of  production      .         .  253 

(c.)  Their  quantity 254 

(d.)  Their  fluency 256 

(e.)  Every  rise  or  fall  tends  to  check  itself.         .  259 

(/.)  A  more  or  less  rapid  circulation        .         .  260 

(2)  Because  they  are  self-regulating  .  .  .261 
(a.)  Legal  relations  of  gold  to  silver  .  .  261 
(6.)  Subsidiary  coins  ...,'.,  263 
(c.)  The  matter  of  alloy          ....  264 

(c?.)  Universal  Coinage 265 

(e.)  French  plan 266 

(/)  Elliott's  plan 267 

(r/.)  German  and  Austrian  coinage         .         .  267 

{h.)  Natural  laws  of  distribution       .         .         .  268 

(3)  They  are  portable,  divisible,  and  impressible  .  272 

L.  Fourth  proposition 275 

a.  Grounds  of  it 275 

b.  Dutch  illustrations  .         .         .      •  .         .         .         .276 


XVUl 


ANALYSIS  OF  CHAPTERS. 


c.  English  illustrations      ... 

d.  American  illustrations 
M.  Fifth  proposition       .... 

a.  Definition  of  money 
h.  Nomenclature  of  money 

c.  The  element  of  credit  in  money 

d.  Difficulties  about  credit 

e.  The  denomination-dollar 
/.  Inconvertible  paper  depreciates    . 
g.  John  Law  and  his  system 
h.  The  French  assignats  . 
i.    American  Continental  money  . 
j.   American  legal-tenders 
k.  American  State  bank  money    . 
I.   American  national  bank  money     . 
m.  History  of  the  Bank  of  England 
n.  Different  spheres  of  money  and  credit 

N.  Sixth  proposition         .... 
a.  Origin  of  usury  fallacies    . 
h.  Exposure  of  these  fallacies     . 
c.  Inconsistencies  of  governments  . 
rf.' Action  of  England  .... 

e.  Action  of  Massachusetts  and  Rhode  Island 
/  Retraction  of  Adam  Smith     . 


CHAPTER  XI. 


ON   CURRENCY   IN   THE   UNITED   STATES. 

A.  Great  variety  in  our  forms  of  money 

B.  Colonial  currencies      ...... 

C.  The  depreciation  of  Colonial  bills  . 

D    Massachusetts  redeems  her  bills  .... 

E.  Parliament  forbids  their  issue  to  the  Colonies . 

F.  The  Revolutionary  paper 

G.  Alexander  Hamilton  and  English  finance 
H.  Mr.  Morris'  Bank  of  North  America  . 

I.  The  "  pine-tree  "  coinage  of  Massachusetts     . 
J.  First  suggestions  of  a  decimal  money 
K.  Hamilton's  Report  as  Secretary  of  the  Treasury 
L.  The  Mint,  its  coins  and  ratios  .... 


ANALYSIS   OF  CHAPTERS. 


XIX 


a.  Binary  system  ..... 

h.  The  word  dollar 

c.  The  figure  of  Liberty       .... 
M.  A  national  bank  then  needful  . 
N.  Its  constitutionality  denied  .... 
O.  Charter  of  the  first  United  States  Bank  . 
P.   Practical  operation  of  it        . 
Q.  Multiplication  of  State  banks   . 
R.  Second  bank  of  the  United  States 
S.  Jackson's  opposition  to  it 
T.  The  "  Specie  Cu-cular  "        .         .        . 
U.  The  sub-treasury  system  .... 
V.  The  increase  and  character  of  the  State  banks 
W.  Secretary  Chase  and  the  war   . 
X.  The  national  bank  system  of  1863 

a.  Its  patriotic  origin        .... 

h.  Method  of  organization  under  it 

c.  Its  benefits 

d.  Its  dangers 

e.  Possible  improvements  of  it 

Y.  Coin  banks 

Z.  Different  kinds  United  States  money 

a.  Too  much  in  quantity       .... 
h.  Prof.  Price's  view  of  currency 

c.  Amasa  Walker's  view  of  currency  . 

d.  Author's  view  of  currency   . 


330 
331 
332 
336 
337 
338 
339 
340 
341 
342 
343 
343 
344 
344 
345 
346 
347 
348 
349 
354 
356 
357 
358 
360 
360 
361 


CHAPTER  Xn. 

ON   CREDIT. 

A.  The  peculiarity  of  credit 

B.  The  terms  debt  and  credit   . 

C.  Traffic  in  credits       .... 

D.  Macleod's  distinctions  . 

a.  Specific  things  and  credit  rights  . 
5.  The  words  loan  and  borrow      . 

E.  Three  kinds  of  values 

F.  The  instruments  of  credit  are 
a.  Promises  to  pay        .         . 

h.  Orders  to  pay       .... 


362 

363 
364 
364 
364 
365 
366 

367 
367 


XX 


ANALYSIS  OF  CHAPTERS. 


c.  Promises  to  pay  are 

(1)  Book-accounts • 

(2)  Promissory  notes  of  individuals  and  nations 

(3)  Bank  bills  .        .        .        .        . 

(4)  Bank  deposits 

(a)  A  new  capital  created 
(6)  Actual,  but  limited 

(5)  Discounted  notes 

(a)  Form  of  discountable  note 
(6)  Form  of  collateral  pledge  . 

d.  Orders  to  pay  are 

(1)  Bills  of  excliange 

(2)  Checks  or  drafts 

(3)  Circular  letters  of  credit 
G.  The  advantages  of  credit 885 

a.  It  passes  capital  from  less  to  more  productive  hands  386 
&.  It  economizes  the  general  operations  of  exchange 

c.  It  dispenses  with  the  use  of  masses  of  coin  . 
(1)  But  never  can  dispense  with  coin  altogether 

d.  Other  credit  operations 

e.  Scotch  cash  credits  ... 
H.  The  disadvantages  of  credit    . 

a.  It  sometimes  makes  capital  unavailable 
&.  Inherent  uncertainties 

c.  Undue  multiplications 

d.  Commercial  crises 

(1)  Cause  and  course  of  a  crisis"     . 

(2)  Crisis  of  1873 
national  debt  a  sort  of  mortgage 
It  has  incidental  advantages 
But  greater  burdens 

c.  Each  generation  should  bear  its  own  burden         .         400 

d.  The  unfunded  debt  should  be  cancelled  .  .  .401 
c.  The  funded  debt  paid  in  gold  .  .  .  .  402 
/.  Consols  explained 403 


I.  A 

a. 
b. 


367 
368 
370 
371 
373 
373 
374 
375 
376 

376 
382 
384 


388 
389 
390 
391 
391 
392 
392 
393 
393 
394 
395 
395 
398 
899 


ANALYSIS   OF  CHAFIERS. 


XXI 


CHAPTER  XIII. 


ON   FOREIGN   TRADE. 

A.  No  new  principles  in  foreign  trade      .        .        • 

B.  But  a  separate  treatment  needful  .... 

C.  Diversity  of  relative  advantage  .... 

D.  Grounds  of  national  diversity         .... 

E.  When  international  exchange  is  profitable 
a.  French  silks  and  English  cottons 

F.  Desires,  efibrts,  estimations,  as  before 

G.  Unequal  absolute  cost  illustrated    .... 
H.  Equal  absolute  cost  illustrated     .... 

I.  Limits  of  value  in  foreign  trade     .... 
J.  Equation  of  international  demand 
•  a.  Arithmetical  illustrations 

&.  Same  principle  in  gold,  or  other  articles 
K.  Purchase  by  exports  is  cheap  purchase  . 
L.  Folly  of  attempting  to  "  compete  "  in  everything 
M.  Effect  on  trade  of  improved  processes  . 

a.  The  benefit  will  be  shared  by  both  nations     . 

h.  Sometimes  more  by  the  second  nation         •        , 
N.  Cost  of  carriage 

a.  It  increases  cost  of  production   .... 

b.  Each  nation  does  not  necessarily  pay  its  own  . 
O.  International  trade  should  be  free  .         .         .         , 

a.  The  mercantile  system  restricted  it 

&.  The  protective  system  restricts  it        .         .         . 

P.  Origin  of  the  word  tariff 

Q.  Nature  of  the  thing  tariff       .         .         .         . 
R.  Distinction  between  revenue  and  protective  tariffs 

a.  A  distinct  principle  underlies  them     .         .         . 

&.  The  two  ideas  cannot  be  united 

c.  Low  duties  more  productive.     Free  Trade  defined 
B.  Objections  to  free  trade  answered        .        .        .         . 

a.  It  is  not  a  theory 

6.  It  will  not  depress  wages         .         .         .         .         • 

c.  Why  protection  has  been  advocated  . 

d.  Manufactures  would  not  collapse  under  freedom 

e.  Nor  would  diversity  suffer  .... 


405 
405 

407 
408 
408 

.  409 
411 

.  412 
413 

.  414 
415 

.  416 
417 

.  418 
418 
419 
420 
421 
421 
422 
423 
424 
424 
425 
426 
426 
427 
428 
429 

.  431 
432 

.  433 
435 

.  437 
441 

.  444 


xxu 


ANALYSIS  OF  CHAPTERS. 


/.  Colbert  better  than  a  protectionist 

g.  High  profits  do  not  make  protection  needful    . 

li.  Nor  do  high  wages        .         .         .         .         . 

i.  Nor  does  less  skill 

j.  Nor  does  true  independence 

k.  Nor  does  cost  of  labor 

(1)  Cost  of  labor  analyzed  .... 

(2)  English  wages  compared  with  our  own 

(3)  Wages  compared  with  materials    . 

T.  Objections  to  protection  stated     .        .        .        . 
a.  It  is  extra-governmental        .... 
h.  It  is  a  matter  of  finesse 

c.  It  is  a  wasteful  way  to  reach  the  end  proposed 

d.  It  makes  a  promise  never  kept 

e.  It  gives  birth  to  smuggling  and  frauds 

/.  It  defeats  itself 

g.  Does  not  raise  average  prices 
h.  Condemned  by  its  fruits  . 
U.  The  voice  of  experience  on  free  trade 
a.  The  Greek  example 
h.  The  Roman  example    . 

c.  The  English  example 

d.  The  imperfect  French  example    . 
€.  The  German  example 
/.  The  Belgian  example   . 


CHAPTER  XIV. 


ON   THE    MERCANTILE   SYSTEM 

A.  Three  epochs  in  the  science  of  exchange 

B.  Fallacies  of  the  mercantile  system  . 
a.  Illustrations  from  England  and  France 
h.  Smugglers  became  the  principal  traders 

C.  First  device  of  the  system,  prohibitions 

D.  Second  device,  high  duties     . 
a.  Illustration  from  the  silk  manufacture 
h.  Abolition  of  the  silk  duties 

c.  The  guilds 

d.  Corn-laws  ...... 

e.  Considerations  condemning  this  device 


ANALYSIS   OF   CHAPTEES.  XXill 

E.  Third  device,  bounties    .......  488 

F.  Fourth  device,  colonies       ......  489 

CHAPTER  XV. 

ON  AMERICAN   TARIFFS. 

A.  England's  policy  towards  the  American  Coloniea  490 

a.  The  "  Navigation  Act "          ....  491 

b.  Prohibitions  on  manufactures     .         .         .  493 

c.  Considerations  condemning  the  colonial  policy         .  494 

B.  Want  of  power  to  regulate  commerce  under  the  Con- 

federation         496 

C.  The  Tariffs  under  the  Constitution         .         .         .         .497 

a.  The  "Hamilton  Tariff"  of  1789   .        .        .        .498 

(1)  Its  low  duties 498 

(2)  Its  steady  revenue 499 

(3)  Its  principles  of  tonnage  and  protection      .         .  499 

b.  The  "  Calhoun  Tariff"  of  1816               ...  500 

(1)  Unfortunate  connection  of  tariffs  with  politics     .  500 

(2)  The  restrictive  system  fairly  entered  upon        .  501 
e.  The  "  Clay  Tariff"  of  1824 501 

(1)  Higher  duties 501 

(2)  Protected  interests  not  satisfied   ....  502 
I  The  "Tariff  of  abominations"  of  1828  ...  502 

(1)  Protection  had  become  unpopular        .         .         .  502 

(2)  Daniel  Webster  first  votes  for  protection           .  502 
8.  The  "  Compromise  Tariff"  of  1833    .         .         .         .502 

(1)  Presidential  canvass  hostile  to  protection          ,  502 

(2)  The  sliding  scale  of  lower  duties          .         .         .  502 
/.  The  "  Whig  Tariff"  of  1842 503 

(1)  Average  of  duties  very  high        ....  503 

(2)  Factitious  character  of  the  industry  stimulated  503 
flr.  The  "Walker  Tariff"  of  1846 503 

(1)  Low  duties,  but  discrimination          .         .  504 

(2)  Increase  of  revenue 504 

ft,  Tlie"  Tariff  of  1857" 504 

(1)  Lower  duties,  and  increase  of  free  list  .         .504 

(2)  Falling  off  of  revenue,  average  of  duties  .         .  504 
i.  The  "Morrill  Tariff"  of  1861 504 

(1)  It  was  not  called  for  by  the  people  .        ..         .  505 

(2)  It  was  unfavorable  to  government  credit      .         .  605 


Xxiv  ANALYSIS   OF  CHAPTERS. 

(3)  Its  free  list  delusive 507 

(4)  Too  many  articles  taxe^,  too  high  rates     .         .  507 

(5)  Not  more  productive  than  British  tariff         .  608 

(6)  False  principles  of  tariff  of  1871       .         .         .509 

(7)  Seven  general  remarks  on  present  protection  610 

CHAPTER  XVI. 

ON   TAXATION.  ' 

A.  Taxation  legitimate  on  principles  of  exchange     .         .  615 

B.  The  Right  of  Property  is  the  power  to  render  services  617 

C.  Taxes,  then,  fall  properly  on  exchanges       .         .         .618 

D.  And  should  be  proportionate  to  their  gains       .         .  619 

E.  Taxes  are  either  direct  or  indirect  .  .  .  .520 
a.  Direct  taxes  fall  on  income  or  expenditure  .  .  621 
6.  Indirect  on  imports  or  services  in  transition     .         .  621 

c.  An  income  tax  unexceptionable  in  principle         .  622 

d.  Its  three  great  advantages 623 

e.  Objections  to  it  answered 624 

/.  Taxes  on  expenditures,  special,  and  hence  objection- 
able        525 

g.  A  house-tax,  however,  less  so       ...         .  625 

Ji.  General  advantages  and  disadvantages  of  each  form  526 

F.  Opportunities  for  experiment 526 

G.  Credits  are  properly  taxed 527 

H.  Duties  and  taxes,  to  be  productive,  should  be  low    .  528 

a.  The  whiskey-tax 629 

I.    Duties  and  taxes  should  be  simple    .         .         .         .  529 

a.  Specific  and  ad  valorem  duties  should  not  be  com- 

bined          529 

b.  Specific  duties  better  than  ad  valorem     .        .        .529 

c.  Once  for  all 530 

J.   Vexatious  and  unproductive  taxes  should  be  thrown  off  530 

a.  Improvement  in  internal  revenue     .         .         .         .531 

b.  Just  such  required  in  the  tariff     .         .         .         .  531 

c.  No  part  of  legislation  to  foster  industries         .         .531 

d.  An  excise  should  go  with  certain  duties  .  .  531 
K.  Taxes  should  be  collected  just  before  disbursement  .  531 
L.  Poorer  citizens  should  be  mostly  or  wholly  exempt  .  532 

M.  Who  pays  indirect  taxes  ? 532 

N.  Do  taxes  diffuse  themselves  ? 533 


ELEMENTS  OF  POLITICAL  ECONOMY. 


CHAPTER  L 

HISTORY     OF    THE    SCIENCE. 

Political  Economy  is  the  science  of  exchanges,  4>/,  ^  ^»»*^^ 
or,  what  is  exactly  equivalent,  the  science  of  value  ^tM^^f^t. 
Properly  to  unfold  this  science,  requires  an  analysis 
of  those  principles  of  human  nature  out  of  \vhich^'t«'*'*^*^*yr' 
exchanges  spring;  an  examination  of  the  provide n- /^^  ^^M**'*'^ 
tial  arrangements,  physical  and  social,  by  which  it 
appears  that  exchanges  w^ere  designed  by  God  for 
the  welfare  of  man;  and  an  inquiry  into  the  laws 
and  usages  devised   by  men  to  facilitate  or  to  im- 
pede exchanges.     The  science,  accordingly,  is  hxr^i i(\^.^  njLd-% 
up  partly  on  facts  of  consciousness   and  partly  on^J  ? 
facts  of  outward    observation.     When  its   proposi- 
tions are  strictly  deduced  from  acknowledged  prin- 
ciples of  human  nature,  and  are  shown  to  be  conso- 
nant with  the  structure  of  the  -world  and  of  society  ;  (^^^'^^^^ 
when  they  are  simply  and  logically  set  forth   in   a  "ny^f^^^ 
system  ;  and  when,  in  their  light,  human  institutions '*-»-'-<-^>^^' 
and  laws  relating  to  exchanges  are  correctly  explained 
and  estimated ;  then  the  science  of  value  is  soundly 
based  and  orderly  unfolded.    An  attempt  to  base  and 
to  develop  the  science  of  value  thus  will  be  made  in 
the  following  pages ;  but  before  that  work  is  fairly 
entered  upon,  it  will  be  well  to  take  a  preliminary 


;    J^^T'T^V  ELEilENTS'  OJF'''P0LIT3[eAJ.':EiJ0N'0MY. 

glance  at  the  hi«^ioJ'y.  cjf 'lihe  science,  -itnci  to  trace  the 

steps  by  which  successive'  inquirers  '  have   brought 

t^t^.  Political  Economy  to  its  present  stage  of  develop- 

^      -.^ment. 
^'^•''^^  O^     While  labor  is  as  old  as  the  race,  and  exchanges 
,^fj^A^X>*^  are  as  old  as  society,  and  while  doubtless  in  all  ages 
UM'uh«>*-4C  individual  inquirers   have  tasked  their  minds  with 
}y^  -^r^-^V     some  portions  of  the  subject,  Political  Economy  as  a 
"^A.  S-p.*?v,  ,       science  can  hardly  be  said  to  have  existed  till  within 
a   period    comparatively   recent.      Men   exchanged 
among   themselves   services   and  commodities,  and 
u,  s.a.^i^      found  their  account  in  exchanging,  long  before  the 
dawn  of  authentic  history.      The  first  commercial 
transaction  on  record  dates  back  about  two  thousand 
years  before  Christ.     It  was  the  purchase  by  Abra- 
ham  of  the  cave  and  field   of  Machpelah.     "  And 
Abraham  weighed  to  Ephron  the  silver  which  he  had 
named  in  the  audience  of  the  sons  of  Heth,  four  hun- 
.    \^  dred  shekels  of  silver,  current  money  with  the  mer- 

^^^^^^^^^  ^^  chant."  All  this  implies  at  that  early  day  fixed  con- 
Alf  ^  f^v  ^T^itions  of  trade.  There  were  merchants  as  a  class. 
Silver  by  weight  was  already  a  medium  of  exchange 
passing  from  hand  to  hand.  It  was  current  money 
with  the  merchant.  In  the  absence  of  written  doc- 
^^^^^^•^  ^  .  uments  a  bargain  was  made  in  the  presence  of  living 
witnesses.  It  was  "  in  the  audience  of  the  sons  of 
Heth,  before  all  that  went  in  at  the  gate  of  his  city, 
that  the  field  and  the  cave  were  made  sure  unto 
Abraham  for  a  possession."  An  earlier  passage  in 
the  life  of  Abraham  shows  that  gold  as  well  as  silver 
was  already  reckoned  an  article  of  merchandise.  It 
is  said  that  Abraham  departed  from  Egypt  "  very 
rich  in  cattle,  in  silver  and  gold." 


HISTORY  OF  THE  SCIENCE.  3 

Homer  makes  no  mention  of  money,  as  he  un-  ^Ho'h^^t^ 
doubtedly  would  have  done  had  he  been  acquainted  ^''^■'*^-*^ 
with  it,  but  there  are  many  passages  in  his  poems 
that  indicate  a  brisk  direct  exchange  of  products  as  rir-i^J<i  1^^  - 
characteristic  of  those  times  and  countries.     There 
was  also  then  and  there  a  sort  of  common  measure 
of  things  exchangeable.     Various  things   are   men- 
tioned in  these  poems  as  being  worth  so  many  oxen,  (a^^  <^*^ 
The  twenty-seventh  chapter  of  Ezekiel  gives  a  vivid 
picture  of  the  immense  commerce  centering  in  Tyre, '^^y'"*- 
Nineveh,  according  to  the  prophet  Nahum,  "  multi- 
plied  her   merchants    above   the   stars   of  heaven." 
Herodotus  makes  the  probable  statement  that  the  ^     , 
Lydians  of  lesser  Asia  were  the  inventors  of  coined  7     * ' 
money;  and  the  same  writer  describes  with  minute ^^^^^^"^ 
accuracy  the  caravan  routes  by  which  Carthaginian 
enterprise  penetrated  the  interior  of  Africa  for  the^^*^,^^,  /J-., 
sake  of  a  trade  in  dates  and  salt  and  gold-dust  and  Pc^ytu-^  cif' 
slaves.     The  records  of  the  voyages  of  Hanno  and 
Hamilco  show  the   Carthaginians  daring  unknown 
seas  also  in  the  interests  of  traffic;  coasting  outside";^ 
the  pillars  of  Hercules,  southward  to  the  mouths  of   "^ 
the    Senegal   and   Gambia,  and    northward    to    theki^AV-VC^ 
British  Isles.      Athens,  Alexandria,  Venice,  Lisbon,  fi<i>^Jict^ 
Amsterdam,   London,   and    New    York,   have    been 
among  the   busy  marts  on  the  Mediterranean  and 
the  Atlantic,  while  counterparts  to  their  activity  in 
trade  have  existed  in  all  ages  in  the  farthest  east. 

The  earliest  writer  known  to  us  who  treated  eco-  v.     - 
uomic  subjects  at  any  length  is  Xenophon.      Before 
the  middle  of  the  fourth  century  before   Christ  this' 
accomplished    Athenian   published   a  treatise   "On 
Ways  and  Means."     This  early  essay,  not  indeed  on 


4  ELEMENTS  OF  POLITICAL  ECONOMY. 

Political  Economy,  but  on  some  of  the  subjects  with 
which  that  science  has  to  do,  contains,  together  with 
much  that  is  fallacious,  some  sound  and  liberal  prin- 

^ei^^ 'Yaw-ciples.  Its  object  is  to  propose  methods  for  enhan- 
'  %,,i^  ,t  cing  the  prosperity  of  the  Athenian  State.  Praising 
the  soil,  the  climate,  the  mines,  the  coins,  the  com- 
mercial position  of  Athens,  Xenophon  suggests  that 
the  State  offer  various  encouragements  to  the  settle- 

i^^^m^y^       ment  of  aliens,  in  order  to  swell  the  active  popula- 

~^4^«^^- •'  -  tion  and  increase  the  revenue  from  the  aliens' tax ; 
that  merchants  and  shipmasters  of  all  nations  receive 
special  honors  in  the  city,  in  order  to  attract  more  of 
them  thither  and  thus  ausrment   the  income  from 

^^^..   "  duties  on  imports  and  exports  ;  that  prizes  be  offered 

the  presidents  of  the  courts  to  expedite  the  trial  of 
commercial  causes;  that  inns,  warehouses,  and  marts 
'"  for  the  sale  of  goods  be  erected  at  the  public  expense 
for  the  sake  of  the  rents ;  that  government  as  such 
,  undertake  commercial  enterprises;  that  especially 
the  silver  mines  be  worked  on  the  most  extensive 
scale,  as  well  on  government  account  as  by  private 
and  joint-stock  adventurers,  so  that  the  State  might 
enjoy  direct  profits  in  addition  to  the  prices  and  the 
twenty-fourth  part  of  the  produce  of  the  mines  pur- 
chased by  individuals ;  and  that  finally  a  council  of 
peace  be  instituted,  by  whose  mediation  war  might 

/t.2:vw  t>e  avoided,  and  the  State,  in  the  enjoyment  of  dura- 
ble tranquillity,  enter  gradually  upon  these  measures 
of  national  improvement,  which,  moreover,  ought  to 
be  begun  and  continued  by  consulting  the  ancient 

,,^1  oracles,  and  by  supplications  to  the  gods.     Xeno- 

■^-  phon  also    has   left   us   a   dialogue   entitled    "The 

Householder,"  in  which  he  says  that  economy  is  a 


HISTORY    OF    THE    SCIENCE.  5 

science  by  itself,  making   the  legal   distinction   be^^^J^  j;^  / 
tween  ohaa  and  oTkos,  the  house,  and  the  whole  estate.  ^.£„a<»-».  « 

Plato  in  the  eleventh  and  twelfth  chapters  of  the 
second  book  of  his  "  Republic,"  admirably  sketches  /^<:-»^  ^*^ 
one  important  principle  of  the  science,  namely,  the-^-*^^  7-^-< 
necessity  men  are  in,  from  their  multifarious  wants/^A*****^"' 
of  uniting  in  society,  in  which  each  individual  may 
devote  himself  to  that  branch  of  industry  for  which 
he  is  best  fitted,  and  then  by  exchange  supply  his 
remaining  wants.     "  More  will  be  done,  and  better, 
and  with  greater  ease,  when  every  one  does  but  one 
thing,  according  to  his  genius,  at  the  proper  time^ 
and  when  at  leisure  from  all  other  pursuits."     But/t-n^^j-*^ 
this  speculative  view  is  adduced  to  account  for  the^ /^^  ^ 
origin  of  a  political  state,  and  is  so  far  from  being     **^  ' 
carried  out  to  its  practical  applications  either  eco-^^*'^*'^"*^.'**' 
nomically  or  politically  that  Plato  goes  on  to  advo-'^.'^'T^^ 
cate  community  of  goods  in  the  leading  class  of  his 
ideal  state,  and  the  exclusion  of  husbandmen  and 
artisans  from  all  share  in  the  government. 

Aristotle  is  sometimes  called  the  father  of  Political  ^^i.^J^,ujU 
Economy.     He  is  certainly  the  father,  if  not  of  the^^-,:^.c_,/ /; 
science,  of  this  name  of  the  science,  which   name,' 
however,  he  uses  in  a  very  different  sense  from  that 
in  which  it  is  now  used.     At  the  opening  of  the 
second  book  of  his  "Economics"  he  distinguishes ''-"'-  /'^•-'' 
economy  into  four  kinds,  the  regal,  the  satrapical,  the  ^^^.'l','^'^ 
political^  and  the  domestic.     By  the  first  he  means  ,v  J  o.l>^ 
the  central,  and  by  the  second  the  provincial,  admin- 
istration of  a  great  empire  like  that  of  Persia;   by  y 
the  third,  the  administration  prevailing  in  free  states ;  ^ 
and  by  the  fourth,  what  we  also  mean  by  domestic 
economy.    It  is  in  the  last  sense,  as  indeed  the  name 


6  ELEMENTS  OF  POLITICAL  ECONOMY. 

(StKo?,  estate^  and  v6ixo<i^  law)  implies,  that  the  ancients 
generally  conceive  of  economy  ;  and  hence,  although 
^  /    /      Aristotle  is  the  first  to  use  the  term  political  econ- 
^    ^   .     omy,  it  is  not  so  much  in  his  " Economics"  as  in  his 
*^  **?  nij ''    "Ethics"  and  "  Politics"  that  we  find  his  real  con- 
Y'j*'-  tribution  to  our  science.     According  to   Aristotle^s 

division  of  the  practical  sciences.  Ethics  treat  of  the 
^^^..yjju^^  ^  nature  and  welfare  of  man  apart  from  the  social  re- 
A/tXZUA^e±  lations ;  Economics  view  him  under  the  social  rela- 
l^Y^*^  V&^tions  of  the  family ;  and  Politics  under  the  social 
«j>J^*  relations  of  the  state.     In  all  three  of  these  treatises 

^  ^      ^,     accordingly  of  this  transcendent  thinker  are  to  be 
'   "        found  acute  definitions,  shrewd  remarks,  and  pretty 
copious  information,  relating  to  the  proper  science  of 
Political  Economy.     This,  for  example,  is  a  perfect 
/^      ;     definition  of  property  :  —  ^^But  hy  property  we  mean 
y^  everything,  of  which  the  value  is  measured  by  moneyP 

-"r*^  V  (Ethics,  IV.  i.)  The  proper  boundary  line  between 
economy  and  morals  is  drawn  as  follows:  —  "  When- 
ever there  is  no  agreement  made  about  the  service  per 
formed,  those  who  confer  a  favor  freely  for  the  sake 
of  the  persons  on  whom  they  confer  it,  cannot  com- 
plain; for  the  value  of  it  is  not  measured  by  money, 
and  no  equivalent  price  can  be  paidP  (Ethics,  IX.  i.) 
The  same  chapter  accurately  describes  the  ultimate 
phenomenon  of  value  as  betw^een  the  two  persons 
exchanging :  —  "  For  each  fixes  his  mind  on  that 
which  he  happens  to  want,  and  for  the  sake  of  that 
will  give  what  he  does  giveP'  Aristotle  understood, 
as  well  as  any  one  understands  at  present,  the  'func- 
tion of  money  as  a  measure : —  "  Money,  therefore,  as 
a  measure,  by  making  things  commensurable,  equalizes 
them;  for  there  coidd  be  no  commerce  without  ex- 


HISTORY  OF  THE  SCIENCE.  7 

change,  no  exchange  without  equality ,  and  no  equality  r  i«  «»*  ^ 
without  the  possibility  of  being  commensurate,^^    (Eth-/'*^^<W . 
ics,  V.  V.)     In  direct  opposition  to  Plato's  proposed  ^•^/^-*-^ 
community  of  goods,  he  insists   strongly  upon  the^'^j**'^* 
rights  and  benefits  of  private  property  (Pol.  11.  v)  -h^^-^'-*^ r^^ 
apprehends  the  true  origin  of  money,  and  that  it  is,   S^o^n^^^ 
in  common  with  all  other  forms  of  property    a  mere-^'J'-'***?  -^-^^ 
means,  no  more  than  they,  an  end  in  itself  (Pol.  I.^*^  fi-^---* 
ix.) ;  and  estimates  agriculture  highly,  as  the  ground      ..   . 
of  all  other  arts,  and  as  most  favorable  to   health,  ^titf^^ 
morals  and  good  government.     (Econ.  I.  ii.)     Still  <ff>^^^^'^ 
Aristotle  was  not  wholly  emancipated  from  the  prej- 
udices of  his  time.     Remarkable  as  was  his  sagacity 
in  matters  economical,  he  yet  held  views  incompati- 
ble with  a  sound  and  complete  science  of  economy. 
For  example,  these  :  —  ^^And  indeed  the  best  regulated^  «^k<^*a 
states  will  not  permit  a  mechanic  to  be  a  citizen;  for^"^^     " 
it  is  impossible  for  one  who  lives  the  life  of  a  mechanic 
or  hired  servant  to  practice  a  life  of  virtue^     (Pol. 
III.  V.)     ^'^  For  usury  is  most  reasonably  detested,  as  ij^^^ 
the  increase  of  our  fortune  arises  from  the  money  it- 
self and  not  by  employing  it  for  the  purpose  for  which 
it  was  intended^     (Pol.  I.  x.)     "  It  is  clear  then  that  5)U^.-„__ 
some  men  are  free  by  nature,  and  others  are  slaves,  7 

and  that  in  the  case  of  the  latter  the  lot  of  slavery  is 
both  advantageous  andjust.^^     (Pol.  I.  v.) 

There  is  another  Greek  contribution  to  our  science, 
important  to  be  mentioned  although  the  author  of  it ' 
is  unknown,  in  a  dialogue  entitled  the  "  Eryxias,"  ^^'^' 
in  which  Socrates  in  conversation  with  Eryxias  is^^  .^^ 

made  to  discourse  copiously  on  the  nature  and  forms 
of  wealth.  This  remarkable  piece  of  discussion  is 
probably  not  much  later  than  the  time  of  Aristotle 


■  -<•>  s^,t 


8  ELEMENTS   OF  POLITICAL  ECONOMY. 

^3  himself,  perhaps  about  three  hundred   years  before 

Christ.     The  author  of  it  perceives  clearly  and  makes 
Socrates  fully  expound  that  things  are  possessed  of 
value  simply  because  they  can   be  exchanged  for 
other  things  that  are  more  wanted,  that  all  values 
are  more  or  less  local,  and  that  "  those  persons  who 
teach  music  or  grammar,  or  some  other  science,  who 
in  return  for  this  obtain  what  is  necessary  for  them 
as  a  remuneration  for  this  instruction,"  also  deal  in 
'i-values  and  are  possessed  of  wealth. 
u#  ify>*^t-^>    ■    There  appear  to  be  three  principal  reasons  why 
^**''^*^  *"'  7  the  Greeks,  who  were  so  intellectually  capable  of 
«u.,^«t^  K  ||.^  g^j^(j  ^j^Q^  g^g  ^g  Yia.Ye  just  seen,  really  touched 
.       '      the   foundations   of   it,   did    not    develop   any   full 
system    of  Political    Economy.     In  the  first  place, 
their    affairs    of    private    life    were    wholly    subor- 
:  .    1*^;  dinate  to -those  of  public  life;   and,  consequently, 
"^  the  varied  forms  of  private   and   associated  indus- 
try could  not  win  that  attention,  which,  at  present, 
they  are  able  to  compel.     To  the  Greeks  the  State 
was  everything,  and  the  individual  only  that  which 
the  State  allowed  him  to  be.     In  the  second  place, 
the   institution    of  slavery   threw   its    shadow    over 
most  of  the   branches  of  industry.     It  was  inevi- 
table that  employments  committed  mainly  to  slaves 
i^  T**!       should  seem  mean  to  the  free.     Only  agriculture  and 
?*/*:L  ^,^^ commerce,  carried  on  on  a  large  scale,  and  scarcely 
fi^'.T'^  ^..;>  these,  escaped  this  damaging  influence.     Even  Aris- 
totle, who  says,  "  The  best  nation  is  a  nation  of  farm- 
ers'' (Pol.  VI.  iv.),  says  also,  ''Neither  should  they 
who  are  destined  for  office  be  husbandmen.''    (Pol.  VIL 
ix.)     It  lessened  no  man's  consideration,  however,  in 
the  public  opinion  of  the  Greeks,  to  have  any  kind 


HISTORY  OF  THE  SCIENCE.  9 

of  industry  carried  on  on  his  account,  provided  he 

did  not  work  at  it  with  his  own  hands.     In  the  thirdi;  ^*-'*''^'^ ' 

place,   the   constant  recurrence   of    wars   interfered 

sadly  with  the  free  expansion  of  industry. 

Nevertheless,  the  Greek  States  showed  practical o^^k  o-^ 
good  sense  in  their  economical  regulations.     They 
fell  into  no  such  egregious  follies  as  have  marked  the^^^  .^^^ 
legislation  of  modern  states.     There  was   no  inter-/>L /^i«^ -^ 
dieting  the  exportation  of  raw  materials;  no  favor- ^V"^'-^*-^ 
ing  of  manufactures  at  the  cost  of  the  agricultural^*''- 
class ;  no  prohibitions  on  the  export  of  specie ;    no 
efforts  to  preserve  a  factitious  balance  of  trade ;  and 
no  duties  on  imports  except  for  purposes  of  revenue.  ^  ^ 
The  usual  customs'  duty  in  the  port  of  Athens  was  c^  ''^^ 
two  per  cent,  of  the  value  of  the  goods.     The  duty 
laid  by  Athens  in  the  ports  of  her  subject-allies  waa  .^^^^^ 
generally  five  per  cent.;  and  when  in  a  few  excep-^^^^^  ^ 
tional  cases  the  rate  was  raised  to  ten  per  cent,  it 
was  regarded  as  extortion.     In  all  essential  respects, '^'>^  .>-  • 
therefore,  there  existed  freedom  of  industry  and  ^ree-^^^^^ 
dom  of  trade.^ 

We  should  expect  beforehand  that  the  more  prac-  f^.p'^'^"'"' 
tical  Romans,  lovers  of  law  and  order,  and  exhibiting  ^..^  .C^ 
to  the  world  many  of  the  high  qualities  of  citizen  "^  • '--^--^ 
life,  would  make  some  valuable  contribution  to  the '^^*^'*^' 
science  of  exchanges.     In  this  we  are  disappointed.^,  .  ^ 
Though  in  the  earlier  and  better  days  of  Rome,  agri- 
culture was  highly  esteemed,  the  blighting  institution  ^'---  *'--^ 
of  slavery  brought  labor,  the  mechanical  arts,  and    1' 
commerce  more  and  more  into  disrepute.    The  lands    -         ^  ^ 
were  tilled  by  slaves.     Slaves  became  the  artisans  of'*'*-  -  -t- 

1  See  Boeckh's  Public  Economy  of  Athens,  and  Heeren's  Ancient  Greece^^^^^  T/Lt*.  -"^1 
chap.  X.    See  also  Macleod's  Economical  Phiioscphy,  vol.  i.  pp.  47,  136.   Ct^^c^  .^    >v 


y~<t 

.r,.    iJjCt. 

1. 

3if-iC\i\ . 

g^O^     d< 

-*\ 

,  Cv»?<<^* 

10  ELEMENTS  OF  POLITICAL  ECONOMY. 

the  country.  As  always  happens  under  such  circum- 
^^"-^  'h*^  stances,  the  freemen,  the  citizens,  came  to  feel  them- 
selves above  such  degrading  occupations.  It  is  piti- 
ful to  hear  Cicero  declaim  against  the  noble  rights 
of  labor.  In  the  "  De  Officiis  "  there  is  a  whole  para- 
graph of  condemnation  for  those  branches  of  man- 
ufacturing and  commercial  industry  which  ought  to 
be  regarded  not  only  as  honorable  but  as  the  life  and 
strength  of  the  State.  One  sweep  of  his  pen  pushes 
t.l^-^^^  out  of  the  pale  of  respectability  the  whole  class  of 

mechanics.  "  k\\  artisans  are  engaged  in  a  degrading 
profession,"  says  he.  Again,  "  there  can  be  nothing 
ingenuous  in  a  workshop."  Trade  and  commerce 
fare  no  better  at  his  hands.  When  carried  on  on  a 
small  scale  they  are  to  be  regarded  as  disgraceful ; 
•  Ll  6^  ^  when  on  a  large  scale  they  must  not  be  greatly  con- 
«/<  ^t^rc  demned  !  When  social  prejudices  and  views  of  labor 
like  these  are  promulgated  by  the  foremost  man  of 
his  time,  the  best  educated  and  the  most  liberal, 
there  is  no  longer  room  for  surprise  at  the  lack  of 
Roman  contributions  to  Political  Economy. 

Moreover,  the  Roman  moralists  regarded  the  accu- 
mulation of  wealth  as  undermining  those  virtues  in 
...J"''- which  they  placed  the  perfection  of  character.    Cato, 
^'^r*.      the  censor,  in  his  denunciations  of  luxury,  which  is 
.   /   the  result  of  accumulation,  was  a  representative  of 
the  whole  class  of  moralists.     Their  position  ought 
<  ,w  *.. ' « i  -     not  to  surprise  us  for  two  reasons.     First,  the  stream 
^^%  /♦^vt^y  Qf  ij^g  Roman  wealth,  much  of  it  at  least,  proved  a 
:*^'"*^     "'^  curse  and  not  a  blessing,  not  because  wealth  is  not  a 
-.*-.  L^^.    blessmg,  but  because  its  waters  instead  of  being  dif- 
-*.^.*,  A'^i'.  fused  everywhere,  rushed  at  once  into  a  few  huge 
r**.4^/.<  reservoirs  —  there  was  no  natural  and  general  distri- 


.^^W.  ^.^^  ^^ORT^  raTfe'SS:^  =--^^^ 

bution  of  it.  Second,  the  source  of  most  of  the 
wealth  was  as  illegitimate  as  its  absorption  by  the 
few  great  families.  It  did  not  come  from  the  peace- 
ful and  gradual  development  of  the  national  re- 
sources ;  it  came  from  conquests,  from  tributes,  often 
from  official  extortion  from  the  provincials.  A 
comprehensive  theory  of  value  will  hardly  be  helped 
forward  in  connection  with  such  moral  notions,  such 
views  of  labor,  and  such  methods  of  gain,  as  pre- 
vailed at  Rome. 

The  Roman  Law,  nevertheless,  laid  down  admira-^^^^^^^  . 
ble  definitions  and  rules  relating  to   property,  and ^^^^ /7w;;l*.,^ 
drew  a  sharp  line  of  distinction,  the  importance  of 
which  is  not  even  yet  fully  acknowledged,  between 
corporeal  and  incorporeal  property,  that  is  to  say, 
between  commodities  and  claims.     One  would  have 
to  try  hard  before  he  could  improve  the  beauty  or 
the  brevity  of  Ulpian's   definition  of  wealth :   "  Ea  'k^*^f  L 
enim  res  est,  quae  emi  et  vendi  potest."     For  thai  is^'^^  ^  -t^^*^ 
wealth  which  may  be  bought  and  sold.     The  Insti-^^opf/tTv- 
tutes  of  Justinian  (II.  2)  distinguish  corporeal  prop- '■^^^'^ ;' ' 
erty,  "  such  as  land,  a  slave,  clothes,  gold,  silver,  and     <->  .^^'^ 
other  things  innumerable,"  from   incorporeal    prop-   '__I2^ 
erty,  "such  as  mere  rights,  an  inheritance  not  y^t ^ jg^^^;^^,^  ^ 
received,  a  usufruct,  uses,  and  all  obligations  how- ^^^1,.^,,,^^; 
ever  contracted."     The  terms  Res,  Bona,  Pecunia,  ' 
and  Merx,  in  Roman  Law  include  rights  as  well  as 
things.    The  Digest  lays  down  this  principle  :  "  Om- 
nium rerum,  quas  quis  habere,  vel  possidere,  vel  per- 
sequi  potest,  venditio  recte  fit."     A  person  may  laiv- 
fulhj  sell  anything  which  he  has  or  possesses  or  has 

THE    RIGHT    TO    SUE   FOR.^ 

See  many  more  quotations  to  the  same  effect  in  Macleod,  pp.  144,  145. 


12  ELEMENTS  OF  POLITICAL  ECONOMY. 

In  all  that  related,  moreover,  to  the  proper  acquisi- 
tion and  exchange  of  property,  and  to  the  manage- 
^j^  ^  ^  ment  of  the  ordinary  sources  of  national  income,  the 

^^^         rv  Romans  exhibited  a  strong  sense  of  justice,  together 
^  «j^  L^.,   with  moderation  and  practical  wisdom.    They  taught 
w^U^v^ .     the   world   something    in   the   matter   of    taxation. 
^  They  opened  up  new  sources  of  revenue,  from  which 

^  governments   still   think   it  useful   to  draw.     They 

'"levied  duties  in  their  ports  as  a  simple  expedient  of 
I..    .1    y    taxation.     They  knew  nothing  of  what  has   since 
{ ;^..t.- .  *^r become  famous  under  the  name  of  Protection.     The 
rate  of  the  duties  in  Cicero's  time  was  five  per  cent,  of 
the  value  of  the  goods ;  in  the  time  of  the  emperors, 
vvnv*^.,  twio.^"^  one  half  per  cent.;  and  the  highest  duty 

.♦w.,^^  known  to  the  Roman  custom-house  was  twelve  and 

one  half  per  cent.  Augustus  introduced  an  excise-tax 
ol  one  per  cent,  on  the  value  of  all  things  which  were 
sold.  The  same  emperor  laid  a  tax  of  five  per  cent,  on 
legacies  and  inheritances.  There  was  a  tax  on  bach- 
elors. In  the  provinces  at  least,  a  door-tax  was 
sometimes  exacted.  The  public  lands,  the  mines, 
rv|  viw)^-.  the  salt-works,  and  especially  the  tributes,  were  the 
remaining  sources  of  income.^ 

"'':  It  will  be  noticed  from  the  points  already  made, 

^    '^-^"c.     that  both  the  Greeks  and  Romans  clearly  perceived 

l^,^^ey<  i^  .  -^^^jjg^^  exchangeability  is  the  one  quality  of  all  things 

^^^ "  having  value,  in  which  the  value  itself  resides,  what- 

'*'*  ever  may  be  the  other  nature  of  those  things;  and 

^yiCfiHtt^^a  also,  that  the  Greeks  and  Romans,  taken  together, 

^A.4/0-^,    recognized  three  great  classes  of  valuable  things : 

■  ■^*y^-<  I  namely,  first,  both  alike,  of  course,  corporeal  things, 

-  /  ^<  A  or  commodities;  secondly,  the  author  of  the  "  Eryxias" 

I  See  articles  "  Vectigalia  "  and  "  Portorium"  in  Diet,  of  Antiquities. 


fn^^ 


HISTORY  OP  THE  SCIENCE.  13 

at  least,  incorporeal  services j  like  those  of  the  teacher ;         r 
and  thirdly,  the  Roman  Law  certainly,  incorporeal  f-^^'^J^ 
rights,  or  claims,  such  as  debts,  copyrights,  patents, '^'■^''^ 
shares,  and  so  on.     Antiquity,  accordingly,  though 
its  contributions  to  our  science  in  the  way  of  con- 
struction are  meagre  enough,  perceived  after  all  some 
of  its  fundamental  distinctions  with  great  clearness. 

The  confusion  consequent  upon  the  breaking  upp^O^ 
of  the  old  Roman  empire;    the   settlement  of  the*'*'**^'*;;^ 
barbarian  nations  in  the  seats  of  the  ancient  civiliza- 
tion; the  gradual  growth  of  feudalism,  than  which^^^^**- 
no  system  could  be  more  hostile  to  a  free  and  varied^^*'/*-^^ 
industry ;  the  almost  exclusive  occupation  of  men's''^*'^'^ 
minds  during  the  Middle  Ages,  with  religious  ques-  i^^'i     ^ 
tions,  and  with  the  intricacies  of  the  d\spntsit\onsot/^-^u^ 
schoolmen ;  the  prevalence  of  the  monkish  idea  thafj,*^^^^^ 
contact  with  the  world  was  contaminating;  the  fact 
that  the  universities  were  under  the  control  of  the 
clergy,  who  only  allowed  in  them  a  meagre  curricu- 
lum of  scholastic  studies  together  with  the  civil  law ; 
and  the  fact  that  war  and  rapine,  rather  than   the 
supply  of  their  mutual  wants,  gave  occasion  to  the 
intercourse  of   nations  with    each   other ;    all   these 
contributed  to  divert  attention  for  centuries  from  the 
subject-matter  of  the  science  of  exchanges. 

In  our  survey  thus  far,  if  we  have  found  little  pes- 
itive  light  thrown  as  yet  upon  the  science  of  value, ,    /^'^>! 
we  have  at  least  discovered  some  of  the  reasons  why''"'' 
such  light  could  not  be  thrown.     Absence  of  compre- , 
hensive  investigation,  however,  does  not  necessarily 
imply  the  lack  of  a  theory.     In  truth,  there  was  a 
half-developed  theory  of  value,  which  exerted  a  pro- 
digious influence,  certainly  from  Cicero's  time,  even 


,t^  <rf  tint    */(^,^^/ 

j^     i    Jfc^.^  *      ELEMENTS  OF  POLITICAL  ECONOMY. 

down  into  the  seventeenth  century.    It  is  remarkable 
that  this  earliest  general  doctrine  of  value,  which  I 
Uo^-'U^  shall  venture  to  call  the  Bullion  Theory,  came  into 
il'  currency  in  direct  contravention  of  the  great  author- 

IUU<^ ,     ity  of  Aristotle.      That   philosopher  taught   clearly 
^v^  /"X^  that  money  is  but  an  instrument  towards  a  further 
^  w^^end,  and  derives  all  its  importance  from   being  an 
u,4t Z(  instrument;   but  the  later  less  acute  observers,  per- 
ceiving that  gold  and  silver  were  the  money  of  all 
civilized  nations,  fell  into  a  curious  mistake  in  regard 
to  the  nature  of  money,  and  came  to  give  to  these 
raJTJ^fc^x.*^  metals  a  factitious  importance  by  regarding  them  as 
^cX^^  the  real  and  only  wealth.     They  overlooked  the  fact 
,^^..ntv ,    that  these  metals  are  a  commodity,  that  they  owe 
their  value  to  efforts  and  desires  just  as  other  com- 
[  /jfc  W.V.  xnodities  do,  and  that  they  are  bought  and  sold  like 
»^>^^^'^-'-  all  other  commodities.     With  useful  products  of  any 
^C<^  ^v.  .    kind  one  can  always  buy  gold  and  silver.     To  trade 
^.  is  nothing  but  to  barter  one  commodity  for  another, 

—  to  exchange  corn  for  silver  and  silver  for  corn. 
Unless  the  trade  is  fraudulent,  the  one  is  equally 
valuable  with  the  other ;  and  it  would  seem  as  if  the 
simple  consideration  that  men  are  willing  to  part, 
and  do  constantly  part,  with  gold  and  silver  to  buy 
other  things,  would  have  been  fatal  to  the  prejudice 
that  the  precious  metals  are  the  only  wealth. 
pt£-w-*>/  There  were  however  two  things  that  seemed  to 
^      sustain  the  Bullion  theory.     One  w§s,  that  money  is 


:?V»L  7^>  always  the  measure  of  value.     "  How  much  is  it 
U^^  /C^  worth?"    The  answer  comes,  so  many  dollars.    Dol-- 
^  ji^  lars  are  the  denomination  in  which  value  is  reckoned, 
.^.^^  just  as  degrees  of  the  thermometer  are  the  denomi- 
nation by  which  heat  is  measured.     The  difference 


HISTORY  OF  THE  SCIENCE.  16 

between  value  itself  and  the  measure  of  value  —  be. 
tween  a  bushel  of  wheat  and  that  round  measure  by 
which  we  determine  that  there  is  a  bushel  — seems 
obvious  enough ;  but  money  has  this  peculiarity,  it  ^^y^.^ 
is  not  only  a  measure  of  value,  but,  so  far  as  thisn/-«v^^.  -U 
expression  is  ever  true  of  any  one  commodity,  it  has^'^^***""^ ' 
value  in  itself.     There  is  no  heat  in  a  thermometer, 
and  no  wheat  in  a  bushel-measure,  but  a  dollar  is  not 
only  a  dollar  measure,  but  a  dollar  value,  and  we  can 
see  how  the  fact  that  dollars  both  had  value  and  were 
the  measure  of  all  other  values,  gave  some  plausibil- 
ity to  the  notion  that  the  dollars  were  all.    The  other 
thing  that  made  the  Bullion  theory  plausible  was  the^^*^^''; 
use  of  gold  and  silver  as  the  universal  medium  of    *" 
exchange.    They  came  to  be  such  medium  simply  in  ,., 

consequence  of  their  convenience  and  their  nearly  uni-  v  ?  ^ 
form  value;  and  because  they  were  such  a  medium, 
everybody  wanted  them,  and  whoever  had  them 
could  get  with  them  whatever  else  he  wanted.  Be- 
cause the  great  thing  was  to  get  money,  men  seemed 
to  think  that  money  was  the  only  thing  to  be  got ! 

I  cannot  find  that  the  Bullion  theory  had  anything  ^^ 
better  to  support  it  than  these  two  deceptive  pillars  >  T^'' 
and  yet  for  a  very  long  period,  and  by  many  well-      '    '""" 
informed  men  as  well   as  by  all  the  unthinking,  it    '    "'""^ 
was  considered  to  stand  upon  an  immovable  founda-^<>*.**^*- 
tion.     The  commercial  policy  that  sprung  from  this^*^^^**^-^*^ 
theory  was  obvious  and  well-nigh  universal.     If  gold'      7'u,'*^ 
and  silver  are  the  only  wealth,  then  by  all  means         ? 
keep  the  gold  and  silver  in  the  country !     Get  all  '^'^'^'-"'^ 
you  can  in,  and  let  as  little  as  possible  out !    Accord-,  ^^f" 
ingly  very  early  the  nations  passed  laws  to  prohibit 
the  exportation  of  gold  and  silver.     We  learn  from 


16       ELEMENTS  OF  POLITICAL  ECONOMY. 

Cicero,  incidentally,  that  this  was  done  repeatedly  at 
t^v^^^.    Rome.     In  one  of  his  orations  he  says,  "  The  Senate 
,.c*.>^ViC.   solemnly  decreed  both  many  tinles  previously,  and 
again  wlien  I  was  consul,  that  gold  and  silver  ought 
not  to  be  exported."      According  to  Adam  Smith, 
ojg^y^f^^t^^^^^  ^^^  ancient  acts  of  the  old  Scotch  Parliament, 
V*.^^  /^»    which  prohibit  under  heavy  penalties  the  carrying 
»n*.*^.  Xr^v  gold  and  silver  forth  of  the  kingdom.      The   same 
/i^o/v^.  /L^     thing  was  done  by  France  and  England,  and  prob- 
ably by  every  other  nation  in  Europe.     Spain  tried 
this  experiment  of  prohibition  under  noticeable  con- 
w/ ditions.     She  had  domestic  mines,  but  also  became 
^U-*-^--     proprietor  in  the  sixteenth  century  of  the  rich  metal- 
lic treasures  of   Mexico   and    Peru.     The   precious 
^'(.Oc^      metals  were  literally  poured  into  her  bosom.     Their 
/^-  ■^'~       export  she  prohibited  under  the  severest  penalties. 
The  prohibition  was  largely  futile,  since  these  are 
A»)f  r|  ^  -    things  that  can  easily  be  smuggled  out.     So  far  as 
'the  prohibition  was  effective  the  metals  in   conse- 
quence sank  rapidly  in  value.     They  are  only  good 
(pA^I  /tv     to  buy  with;  and  as  the  Spaniards  were  not  allowed 
i2^^      to  buy  with  them  abroad,  they  soon  found  that  they 
•^^   i     could  buy  relatively  little  with  them  at  home ;  which, 
^       I  of  course,  increased  the  smuggling  out.     Spain  per- 
ti^jL'"     sieted   in   this   policy  until   her   commercial   decay 
L^  ^<-.*v      proved  to  her  and  to  all  the  world,  not  only  the  folly 
J^<*^f<      of  such  attempts  to  obstruct  the  natural  current  of 
'      "''  "       commercial  circulation,  but  also  the  important  truth 
that  national  wealth  consists  not  in  the  mere  abun- 
dance of  gold  and  silver.     Had  the  Bullion  theory 
been, correct,  to  encourage  the  importation  of  the  pre- 
cious metals,  and  discourage  their  exportation,  would 
have  been  the  high  road  to  national  prosperity.     But 


HISTORY   OF  THE   SCIENCE.  I'Jf 

the  Bullion  theory  was  not  correct ;  and  the  clear- 
ness of  our  views  in  Political  Economy  will  largely 
depend  upon  our  thorough  emancipation  from  the 
prejudice  that  gold  and  silver  are  any  more  valuable 
or  any  more  desirable  than  the  products  for  which 
they  exchange.  They  constitute  a  part,  but  only  a 
small  fractional  part,  of  the  values  of  any  country. 

The  discovery  by  the  Portuguese  of  an  ocean  path^^-^c^., 
to  the  Indies  in  1497,  and  the  general  waking  up  of<A:<uu^-r^ 
the  European  mind  during  the  next  century,  gave  oT"^  ^*^" 
vast  impulse  to  commerce.     On  the  last  day  of  that 
century,  Dec.  31,  1600,  Queen  Elizabeth  chartered       , 
an  exclusive  company  entitled  "  The  Governor  and<;^^\ 
Company  of  Merchants  of  London  trading  into  the 
East  Indies."     They  were  empowered  to  export  dXlQ^^^^^l^ 
sortsvof  goods  free  of  duty  for  four  years;  and  alsoA^'^A-^ 
to  export  foreign  coin  or  bullion  to  the  amount  of /^^I^v-. 
£30,000  a  year,  £6,000  of  the  same  being  previously  <>^^j<;,^ 
coined  at  the  mint;  but  they  were  at  the  same  time ^z^'-"-^'    . 
put  under  obligation  to  import,  within  six  months  ^*X£j^ 
after  the  completion  of  every  voyage  except  the  first,       ^ 
the  same  quantity  of  silver,  gold,  and  foreign  coin 
that  they  had  exported.     The  enemies  of  the  Com-  C<y-t^f-<. 
pany  soon  complained  that  this  last  condition  was  '^^  ^'-^■-^ 
not  complied  with,  and  that  it  was,  besides,  highly 
injurious  to  the  public  interest,  and  contrary  to  all 
principle^  to  allow  gold  and  silver  to  be  sent  out  of 
the  kingdom. 

The   advocates  of  the   Company,    on  the  others vcUv^^a 
hand,  though  they  did  not  venture  to  assail  the  doc- 7^*^*^ 
trine  that  wealth  consists  in  gold  and  silver  alone,'"'   ''    '^^ 
took  narrower  ground,  and  asserted  that  the  export  j 
of_  money  is  advantageous,  whenever   the   articles ^,Lr(^^^, 
2         " "  ' 


IB  ELEMENTS  OF  POLITICAL  ECONOMY. 

bought  by  it  and  imported,  are  chiefly  reexported  to 
other  countries  and  sold  for  as  much  money  as  was 
originally  carried  out ;  and  also  whenever  the  export 
of  coin,  and  the  consequent  import  of  commodities, 
occasions,  though  indirectly,  a  greater  value  of  ex- 
.  ports  from  home  of  native  products.     Thomas  Mun, 

r  *^^  (^  a  writer  of  that  period,  quoted  by   Adam    Smith, 
"^  I       compares  the  trade  of  the  merchant  exporting  gold 
and  silver,  to  the  seed-time  and  harvest  of  agricul- 
ture.    "If  we  only  behold,"  says  he,   "the   actions 
of  the  husbandman  in  the  seed-time,  when  he  cast- 
eth  away  much  good  corn  into  the  ground,  we  shall 
account  him  rather  a  madman  than  a  husbandman. 
But  when  we  consider  his   labors  in   the   harvest, 
which  is  the  end  of  his  endeavors,  we  shall  find  the 
worth    and   plentiful   increase  of  his    actions."     In 
these  excuses  now  set  up  for  the  exportation  of  bull- 
\^i.^<  ^'  ^°"  ^^  "^^y  mark  the  beginnings  of  a  second  general 
^  commercial  theory,  which  is  usually  termed  the  Mer^ 
^.  cantile  System.     This  child  of  the  bullion  theory  be- 

came in  turn  the  cause  of  the  death  of  its  parent. 
f**^-w^t*v^<  The  advocates  of  the  East  India  Company  gradually 
^b^uc^^    learned  to  take  broader  ground,  and  at  last  boldly 
^^^Ak*. -contended  that  bullion  was  nothing  but  a  commod- 
'^(f "         ity,  and  that  its  exportation  should  be  made  as  free 
'«>Jc.v,./>vil<  as  that  of  other  commodities.     These  views  gained 
strength;    many  eminent  merchants  not  connected 
with  the  Company  adopted  them  ;  and  in  1663,  the 
House  of  Commons  repealed  the  statutes  prohibiting 
the  exportation  of  foreign  coin  and  bullion,  and  gave 
^r^^S  the  Company  and  private  traders  liberty  to  export 
them  in  unlimited  quantities.^ 

1  M'Culloch's  Commercial  Dictionary^  Art.  East  India  Company. 


HISTORY  OF  THE  SCIENCE.  19 

The  Mercantile  System,  though,  as  compared  with  ^W-**^^ 
the  previously  existing  bullion  theory,  it  was  a  con-  ^SyAjU^  i 
siderable  step  in  the  progress  towards  sounder  opin-  ^'-***<». 
ions,  was  itself  fallacious  in  principle  and  pernicious 
in  action.    It  gave  its  care,  not  indeed  to  prevent  the 
direct  export  of  the  precious  metals,  but  to  make  the^'^^j^^^-*^ 
general  exports  of  a  country  greater  than  its  imports, 
so  that  a  balance  should   come  back  in   gold   and 
silver.     The  sole  aim  of  the  system  was  to  preserve 
what  was  called  the  Balance  of  Trade,     A  famous  B*^o-^ct 
phrase  this,  the  balance  of  trade!     The  legislation,  ^•^'^• 
the  politics,  the  diplomacy,  and  the  wars,  of  nearly 
two  centuries  were  full  of  it. 

By  the  balance  of  trade  was  meant  the  excess  of  )7vc<y^^^ 
the  value   of   the    commodities   exported  over   the^^*^*^^ 
value_qf  the  commodities  imported,  which  excess  it 
was  supposed,  would  always  come  back  in  the  form 
of  gold  and   silver.     Hence   unlimited   pains  were 
taken  to  make  the  exports  greater  than  the  imports,  t-%t^^^  - 
and  the  excess  was  regarded  as  the  measure  of  a  *^"^  '^:*-A 


country's  commercial   prosperity.     Various   devices 
were  employed  to  make  the  exports  great  and  the 
imports  little.     To  increase  the  amount  of  exports, ^^^^//t 
bounties  were  offered  to  domestic  producers,  to  en-^^»-^-^*^  -^ 
courage  them  to  sell  as  much  as  possible  to  foreign  '^-^-'^♦'X.^ , 
countries.    With  the  same  end  in  view,  the  rs-w  ms.-  ft^r^U^U 
terials  of  domestic  manufactures  were  forbidden  to 
be  exported,  so  that  the  finished  products,  thereby 
rendered  greater   in   amount,  might  help  swell  the  <^i^l*^>^- 
exports.     Colonies  were  planted  with  similar  intent,  y,      i    . 
that  the  mother  country  might  find  an  open  market  ^^^'^■^-^^^ 
there,  and  swell  her  exports.    To  diminish  the  aggre-  '^^^■•^i^-^T-^ ' ' 
gate  of  imports,  prohibitions  were  laid  on  the  bring- /^^-^     ' 


20  ELEMENTS  OF  POLITICAL  ECONOMY. 

ing  in  from  abroad  articles  which  could  be  made  or 
grown  at  home ;  and  heavy  restrictions  imposed  on 
imports  from  those  countries  with  which  the  balance 
.        was   supposed  to  be  unfavorable,  while  the   same 
'*"*^  ^r    ""'articles,  perhaps  of  an  inferior  quality,  were  admit- 
JZt^^^f     ted  on  easier  terms  from  countries  with  which  the 
^  '    '  balance  was  supposed   to  be  better.     Thus  every- 

thing was  sought  to  be  regulated  in  view  of  an 
imaginary  balance  of  trade.  The  Mercantile  System 
was  the  prolific  mother  of  those  commercial  restric- 
tions, those  attempted  regulations  of  manufactures, 
those  doctrines  of  monopoly,  of  corn-laws,  and  colo- 
nies, which  have  fettered  industry  almost  up  to  the 
present  time. 

The  particular  fallacies  that  lurk  in  the  Mercantile 
System,  and  the  tortuous  and  cramping  policy  that 
-^^  grew  out  of  it,  will  be  more  fitly  discussed  at  a  later 

stage  of  our  inquiries ;  this  is  a  proper  place  to  indi- 
cate in  general  that  the  whole  system  is  based  on  a 
misapprehension.     It  overlooks  entirely  the  mutual 
benefit  to  the  parties  of  every  act  of  exchange,  with- 
^,   ^       out  which  benefit  the  exchange  clearly  would  not 
,»^v.-^      take  place  at  all,  and  makes  the  whole  advantage  of 
o^iUv.  '.     commerce  consist  in  a  certain  balance  of  gold  and 
•^  SA.r'     silver,  which  comes  back  to  that  one  of  the  parties 
which  has  managed  to  part  with  more  of  its  own 
commodities.    It  seems  strange  that  it  did  not  occur 
to  those  people,  that,  if  it  were  worth  while  to  trade 
at  all,  the  benefits  of  the  trade  were  rather  to  be 
measured   by  the  amount  and  value  of  what  was 
received,  than  by  the  amount  and  value  of  what 
was  parted  with!     Moreover,  the  system  takes  for 
granted,  that  traders  carry  forth  goods   to  foreign 


HISTORY  OF  THE  SCIENCE.  21 

countries  to  receive  back  goods  and  bullion  worth  as 
much,  —  less  goods,  indeed,  and  the  balance  in  bul- 
lion.    Why  on  that  principle  should  the  goods  be 
carried  forth  at  all  ?     The  labors,  the  risks,  and  the 
exchanges   all   made;  the   goods   and    the   balance 
received ;  and  the  country  just  as  well,  but  no  bet- 
ter off  than  before  I     The  whole  wisdom  of  the  Mer-urJ,t^ 
cantile  System  was  to  sell  as  much  as  possible  and . 
buy  as  little  as  possible,  —  a  wisdom  which  is  evi-     '' ' '  ^^ 
dent  folly,  inasmuch  as  it  is  not  possible  to  sell  with-«^^    J^ 
out  buying,  or  to  buy  without  selling.     The  sound v*"^**^^^' 
reason,  that  justifies  the  East  India    Company  in  ^Uik^^^^X^S 
exporting  the  metals  or  other  commodities,  and  at  *'>^^^r 
the  same  time  condemns  the  Mercantile  System,  is,    ^^     ^ 
that  the  goods  purchased  by  the  exports  are  of  greater  ^ 

worth,  when  imported,  than  what  was  exported  to 
pay  for  them. 

The  leading  commercial  nations  of  Europe,  nev-  j    ^, 
ertheless,   fell   into   the   meshes   of  the    Mercantile  "^     ,  ,^  -^ 
System.      Portugal,    Spain,    France,    Holland,   ^'^^fy^^a^a^ 
England,  all  gave  their  attention  to  the  balance  of  s^^^jMz^  - 
trade,  all  laid   restrictions  on  the  natural  freedom 
of  industry,  and  all  applied  the  system  rigidly  to 
their  colonial   dependencies.     These  restrictions  on 
trade,  especially  on  the  importation  of  manufactured 
goods,  and  on  the  exportation  of  corn  and  raw  mate- 
rials, to  say  nothing  of  the  bounties  which  the  people 
were  taxed  to  pay,  were  to  the  last  degree  vexatious 
and  onerous ;  while  the  penalties  for  their  infringe- 
ment were  in  many  cases  cruel  and  even  barbarous. 
Various  writers  in  the  different  countries,  and  partic- 
u'arly  in  England,  where  the  laws  in  question  were, 
perhaps,  the  most  oppressive,  began  to  attack  the  mer- 


lidii. 


22  ELEMENTS  OF  POLITICAL  ECONOMY. 

■3  ^/A.  cantile  theor}^  and  the  policy  that  had  grown  out  of 
uf^CTaiLAcA  -  it.  And  it  is  to  this  series  of  writers  in  long  succes- 
(U^^JU^  sion,  some  overthrowing  one  false  position,  and  some 
lfcu*.ec  e^-  another,  one  establishing  a  truth  here  and  another 
fe.>v-.  there,  that  we  owe  the  gradual  development  and 
,,/,iiU  l5k{^5»'«' present  state  of  the  scienoe  of  Political  Economy. 
Kt%^^  The  science  has  gradually  emerged  from  the  waves 
•«v-  of  thought  dashing  and  roaring  around  the  Mercan- 

tile System.  It  is  still  necessary,  at  least  on  the 
continent  of  Europe  and  in  the  United  States,  to 
3ombat  some  of  the  remains  of  the  old  mercantile 
legislation.  England  is  believed  to  be  the  only  coun- 
try which  has  erased  from  her  statute-book  the  last 
vestiges  of  the  system.  This  she  has  done  in  direct 
consequence  of  the  skill  and  power  with  which  the 
political  economists  have  guided  the  public  opinion 
.  ^,  of  that  country;  and  it  is  on  account  of  their  suc- 
^^*"^^  cess,  as  well  as   on   account  of  the  superior  num- 

.  hers  and  weight  of  English  thinkers  in  this  field  of 
,  ^inquiry,  that  it  is  proper  now  to  consider  first  the 
English  contributors  to  the  modern  science  of  Politi- 
cal Economy.  We  shall  then  attend  to  what  the 
French  have  done  towards  building  up  the  science ; 
and,  with  a  few  remarks  on  the  Italian  and  German 
writers,  shall  close  this  sketch  with  a  brief  recital  of 
American  views  and  writers. 

It  is  not  necessary  in  a  book  like  the  present  to  go 
into  much  detail  respecting  individual  authors,  or 
their  claims  to  priority  of  discovery  in  the  realm  of 
economical  truth.  My  object  is  to  give  a  brief  but 
just  outline  of  the  labors  of  the  principal  thinkers, 
with  the  practical  aim  of  preparing  my  readers  for  a 


^u! 


HISTORY  OF  THE  SCIENCE.  23 

better  apprehension  of  the  discussions  which  follow.^ 
It  will  be  seen  that  most  of  the  writers  fall  naturally, 
and  without  much  reference  to  their  nationality,  into  y  v 

three  great  schools,  according  to  their  conceptions  of  '''^^^ 
the  nature  and  limits  of  the  science.     The  founder 
of  the  first  school  was  Quesnay ;  of  the  second,  Adam^*  ^^^-^  ^ 
Smith;    and   of  the    third,  Condillac,  or   Whately.^ /^.m  >'^^  ^ 
The  distinguishing  marks  of  these  schools  will  pretty 
clearly  appear  as  I  proceed.  Bi^CLfsti 

Omitting  the  pamphleteers,  who  not  seldom  struck  ^»v*-f<^U<Xi 
upon  an  important  truth  here  and  there  in  their  zeal- 
ous debates  on   questions  of  taxation,  trade,  poor- 
laws,  or  other  point  of  government  policy ;  and  who 
are  to  be  regarded  as  the  pioneers  in  economical  dis- 
covery, pushing  their  way  into  the  wilderness  in  one 
direction  and  another,  and  thus,  as  it  were,  piloting 
the  great  writers  who  came  after, — John  Locke  may  X^*C^»^ 
first  be  mentioned,  whose  "  Two  Treatises  of  Govern- 
ment" were  published  in  1690,  in  justification  of  the 
English  Revolution  of  1688,  in  which  he  incidentally 
illustrates  the  distinction  between  utility  and  value,  P-^^^'i''" 
and  all  but  establishes  this  one  of  the  fundamental 
truths  of  Political  Economy,  namely,  that  value  is 
the  birth  of  effort,  and   not  the  gift  of  Providence.  V^^  |>,^ 
He  says:  —  "  For  it  is  labor  indeed  that  puts  the  dif- Hf^^*"'^ •  ^ 
ference  of  value  on  everything ;  ^^  again: — ^^What-',^ 
ever  bread  is  worth  more  than  acorns,  wine  than  water^t^^*^^ ?  ' 
and  cloth  or  silk  than  leaves^  skins  or  moss,  that  iSa^^^Jk^  - 
wholly  owing  to  labor  and  industry  ;  "  again  :  —  "7^  is 
labor  then  that  puts  the  greatest  part  of  value  upon 
^and,  without  which  it  would  scarcely  be  worth  any- 

1  See  for  particulars  McCulloch's  Introduction  to  his  excellent  edition  of 
Adam  Smith;  Macleod's  DictionUry  of  Political  Economy,  so  far  as  it  has 
appeared;  Macleod's  Principles  of  Economical  Philosophy ,  passim ;  and 
the  Works  of  the  various  authors  referred  to. 


24  ELEMENTS  OF  POLITICAL  ECONOMY. 

thing ;  '^   and   once   more  :  —  "  Supposing  the  world 
given,  as  it  was,  to  the  children  of  men  in  common,  we 
see  how  labor  could  make  men  distinct  titles  to  the  sev- 
eral parcels  of  it  for  their  private  uses  J^  "^     These  pas- 
sages are  an  early,  if  not  the  very  earliest,  statement 
ot  a  truth  destined  in  our  own  day  to  transform  the 
face  of  the  science  of  economy ;  but  Locke  himself 
was  hardly  aware  of  its  pregnant  nature,  and  did  not 
deduce  from  it  the  conclusions  which  it  is  well  able 
to  bear.     In  the  controversy  concerning  the  recoin- 
t/iijL  <Kv       ^§^  ^^  silver  money  in  the  same  reign,  Locke  did 
Hxx^    wUi   g^^^  service  by  his  tracts  on  money,  in  preventing 
™J/.  the  lowering  of  the  currency  standard,  and  in  diffus- 

'  *  ing  sound  principles  (not  unmixed  with  several 
errors)  on  the  nature  of  money.  He  justly  taught 
that  it  was  as  absurd  for  the  State  to  attempt  to  fix 
the  price  of  money,  as  to  fix  the  price  of  cutlery  or 
broadcloth.^ 

David  Hume,  more  distinguished  as  a  historian 
and  writer  on  strictly  philosophical  subjects,  must 
yet  be  mentioned  with  honor  in  any  sketch  of  the 
rise  of  the  science  of  economy.  He  was  the  friend 
and  forerunner  of  Adam  Smith.  His  Political  Essays 
were  published  in  1752.  The  titles  of  some  of  these 
are  as  follows :  —  "  Of  Commerce,"  "  Of  Money," 
"  Of  Interest,"  «  Of  the  Balance  of  Trade,"  "  Of  the 
Jealousy  of  Trade,"  "  Of  Taxes,"  "  Of  Public  Cred- 
it.'' In  these  essays  are  to  be  recognized,  not  only 
the  clear-flowing  style  which  makes  it  always  a 
pleasure  to  read  Hume's  "  History  of  England,"  but 
also  liberal  sentiments  largely  emancipated  from  the 
fetters. of  the  mercantile   system.     The  views  pro- 

1  Locke,  book  ii.  sections  39,  40,  42,  43. 

2  Macaulay's  England,  chap.  xxi. 


^X 


HISTORY  OF  TriE  SCIENCE.  26 

pounded  are  interesting  even   where   they  are    not 
sound.     Of  commerce,  he  says,  "  Foreign  trade,  by 
its  imports,  furnishes  materials  for  new  manufactures : 
and^  by  its  exports,  it  produces  labor  in  particular  com- 
modities, luhich  could  not  be  consufned  at  home.    In 
short,  a  kingdom  that  has  a  large  import  and  export^ 
must  abound  more  with  industry,  than  a  kingdom  that 
rests  contented  with  its  own  commodities.    It  is  there- 
fore more  powerful,  as  well  as  richer  and  happier, ^^ 
I  am   aware  of  no   earlier   hint   of  the  great  truth 
afterwards  fully  developed  by   Say,  that  there  can 
never  be  a  general  over-production,  than  these  words  ^    "-^a-h-* 
from  the  same  essay  :  —  ''•If  strangers  will  not  take  Qj^a^\j<^^aaA)^ 
any  particular  commodity  of  ours,  we  must  cease  to  \  *'****  j^^ 
labor  in  it.     The  same  hands  will  turn  themselves  to-  fH)-%%e^  T 
wards  some   refinement  in  other  commodities  which 
may  be  wanted  at  home;  and  there  must  always  be 
materials  for  them  to  work  upon,  till  every  person  in 
the  State  who  possesses  riches,  enjoys  as  great  plenty 
of  home  commodities,  and  those  in  as  great  perfection 
as  he  desires  ;  which  can  never  possibly  happen." 
The  absurdity  of  the  then  current  notions  concerning   > 
the  Balance  of  Trade  is  triumphantly  exposed  by/^*^ 
Hume,  in  the  essay  under  that  title ;  and  in  the  con-^"**^ 
elusion  of  the  essay  on  the  Jealousy  of  Trade,  occur 
these  noble  words :  —  "J  shall  therefore  venture  to 
acknowledge,  that,  not  only  as  a  man,  but  as  a  British 
subject,  I  pray  for  the  flourishing  commerce  of  Ger- 
many, Spain,  Italy,  and  even  France  itself. ^^     Hume 
throws  some  new  light  on  the  subject  of  Money ;  ^  '^^^^ 
although   his  discussion   of  it  is  marred  by  the  as-jf^^  ^^.^^ 
sumption,  that  a  less  quantity  of  the  metals  would  ^.c,.,,,^  7^ 
answer   every  purpose   of  commerce   as  well  as  a  />-«*'5»^  '^  ^^ 


26     ,  ELEMENTS  OF  POLITICAL  ECONOMY. 

greater,  and  have  as  much  value ;  which  would  only 
be  true  on  the  supposition  that  the  less  quantity  cost 
as  much  effort  to  produce  it,  and  its  minuter  sub- 
divisions were  as  convenient  in  exchange ;  —  a  false 
assumption  from  which   he  deduces  this  very,  false 
inference :  —  "  Were  all  our  moneys  for  instance,  re- 
**^    'tj  JLz    coined,  and  a 'penny's  worth  of  silver  taken  from  every 
w  v^ic-.^"?  shilling,  the  new  shilling  would  probably  purchase 
y6,*.vut')(v  ^  everything  that  could  have  been  bought  by  the  old ; 
^,^.g,4jiAJr'volJ^  and  domestic  industry,  by  the  circulation  of  a  great 
^VMTv*  ^      number  of  pounds  and  shillings,  would  receive  some 
increase  and  encouragement^     Are  men,  then,  usu- 
ally willing  to   consider  \l  equal  to  If?     Besides, 
)'Mjuv*^^^  :fc  Hume  did  not  attempt  to  analyze  value,  or  to  ground 
^aX^j^^j^^A^U,-  comprehensively  the  science  of  Political  Economy. 
u^  So  far  as  Great  Britain  is  concerned,  that  attempt 

•9  ^}xJL  ^^^^  ^^^*  made  by  Dr.  Adam  Smith,  who  published 
in  1776  his  great  work  on  the  "  Wealth  of  Nations," 
in  which  many  of  the  more  important  propositions 
of  the  science  are  established  beyond  the  reach  of 
controversy.  Between  1752  and  1763,  he  had  been 
WiS^Ah-AM^  Professor  of  Moral  Philosophy  in  the  University  of 
Glasgow ;  in  that  capacity,  he  had  delivered  lectures 
on  natural  theology,  ethics,  jurisprudence,  and  public 
economy;  the  lectures  on  ethics  were  developed  into 
his  "  Theory  of  the  Moral  Sentiments,"  published  in 
1759 ;  it  is  supposed  that  the  lectures  on  public! 
v_^^,  economy   formed   the    nucleus    of  his   '*  Wealth   of 

^c«'  >  Nations,"  as  it  is  known  that  he  advocated  in  them 

^j^^  the  doctrine  of  Free  Trade,  which  was  at  that  time 

i UlUtw  rt^  also  very   popular  in  France;  in   1763,  he  went  to 
^ec-  France,  where   he  resided  for  three  years,  and  be- 

>t.  ^  ^^  ^  came  very  intimate  with  Quesnay,  whose  subsequent 


HISTORY  OF   THE  SCIENCE.  27 

death  alone  prevented  the  dedication  to  hinn  of  the/>«^_ 
"Wealth  of  Nations,"  so  that  Dr.   Smith   was   not^  ^A^^e^;.^ 
only  familiar  with  the  doctrines  of  Quesnay  but  also^S«*«.<-v^«^ 
allowed  them  to  color  many  parts  of  his  book;  and  ^  .    - 
the   ten   years   between   1766   and    the   date   of   ita^,  .^/J 
publication  were  occupied  by  him  in  retirement  in  ;a«"uc^^<4  > 
its   preparation.     It  will  be  noticed  that  the  pub-pt-^Xiw': 
lication   of  this  work   took   place  in   the  very  year 
in    which    American    Independence   was    declared;^ 
and   it   was   itself  a   sort    of   declaration    of  inde-J^**"''^^' 
pendence  of  the   false    principles    and   foolish    V^^-^ q       j 
icy  of  the  Mercantile  System.     Like  the  document  T 
of  Jefferson,  it  excited  universal  attention :  like  that,^**^^»  ^ 
it  marks  an  era;  and  the  results  in  the  economicalv^^^^.X^^ 
world  of  the  treatise  of  Smith  have  been   scarcely 
less  striking  and  beneficent  than  the  results  in  the 
political  world  of  the  document  of  Jefferson.      In- 
deed, the  merits  and  originality  of  Dr.  Smith  are  so^tvt^^^-^  "^ 
great,  that  he  has  frequently  been  called,  as  Aristotle  PJL^  ^e*^. 
has  been  by  others,  the  father  of  Political  Economy. 
It  is  not  just  that  that  title  should  be  borne  by  either/^  f^cCL»^r- 
the  one  or  the  other;  the  science  has  grown  up  very^^wvc.*^^^.,.^;^ 
gradually,  and  through  the  contributions  of  a  great 
many  thinkers;  but  the  most  prominent  name  among 
them  all  is  now,  and  doubtless  always  will  be,  the 
name  of  Adam  Smith.     He  goes  over  most  of  the 
gi'ound  that  properly  belongs  to  Political  Economy,  ^, 
expressly  admits  in  one  place  that  the  "natural  and       ^ 
acquired  abilities"  of  individuals  are  a  part  of  the'^  *-»i>'^ 
wealth  of  the  nation,  and  in  another  that  bank-notes, 
bills  of  exchange,   and   other  instruments  of  credit 
are  a  part  of  capital;  he  endeavors  to  bring  the  prin- 
ciples discovered  by  others  and  those  first  demon- 


28  ELEMENTS  OF  POLITICAL  ECONOMY. 

strated  by  himself  into  one  system,  and  by  means 
of  historical  information  to  make  his  book  as  inter- 
esting as  it  is  instructive  by  reason  of  its  scientific 
L#-«L^^i^. discussions;  he  maintains,  in  opposition  to  Ques- 
nay,  that  labor,  and  not  simply  the  physical  earth,  is 
f  a  source  of  wealth,  and  also  that  in  commerce  both 

^Lci^  *j6?e5  gain;  he  exalts  labor,  shows  the  immense  ad- 
.^     «v         vantages   of  its  division,  advocates   its  unshackled 
'  freedom,  and  classes  artisans,   manufacturers,  mer- 

chants, and  traders  as  productive  laborers;  he  unfolds 
the  benefits  of  commerce,  and  mercilessly  exposes 
the  weak  points  of  the  restrictive  and  regulating 
devices  of  the  mercantile  system  ;  and  he  discusses 
money,  capital,  profits,  wages,  rent,  taxation,  and 
public  expenditures.  Mr.  Buckle  affirms  that  "Adam 
Smith  contributed  more,  by  the  publication  of  this 
single  work,  towards  the  happiness  of  man,  than  has 
been  effected  by  the  united  abilities  of  all  the  states- 
c.c,.  /  /trd^  jjjgj^  g^j^(j  legislators  of  whom  history  has  preserved 
an  authentic  account."  A  book  with  such  a  scope, 
^r  fK^  and  published  at  such  a  time,  of  (^urse  contains 
'  t^M  many  errors;  but  the  wonder  is,  not  that  there  are 
'  so  many,  but  that  there  are  not  more.  A  ground- 
less distinction  still  kept  up  between  productive  and 
unproductive  labor;  a  strong  tendency  to  regard 
material  commodities  as  alone  possessed  of  value, 
and  labor  as  the. only  cause  of  value;  a  failure  to 
carry  out  to  their  practical  consequences  admissions 
and  distinctions  which  he  himself  makes,  —  as  when, 
for  example,  he  distinguishes  utility  and  value  as 
"value  in  use  and  value  in  exchange ; "  a  remarkable 
lack  throughout  of  clear  definitions,  and  a  conse- 
quent  partial  confusion   in    his   use   of  the   terms 


HISTORY   OF   THE   SCIENCE.  29 

Wealth  and  Value,  and  in  the  doctrines  dependent 
on  these ;  a  preference  still  given  to  agriculture  over 
other  forms  of  production,  and  Jo  the  Jiom^e^Jrade 
over  foreign  trade ;  a  misapprehension  in  regard  to 
the  nature  of  rent ;  occasional  inconsistencies  with 
his  own  principles,  as  when  a_llowingJ:hat  a  State 
may  regulate  the  rate  of  interest,  and  that  some 
wines  bear  a  high  price  on  account  of  their  scarcity 
and  fashionableness  ;  a  confused  arrangement  of  the 
topics  discussed;  and  lastly,  a  prolixity  that  at  times 
becomes  tedious;  are  among  the  chief  defects  of 
Smith's  "Wealth  of  Nations." 

Most  of  the  English  writers  on  this  subject,  since  hu-xJ-  ^^ 
the  time  of  Dr.  Smith,  may  be  fairly  said  to  belong  C'C.«:,-->-'v^^ 
to  his  school.  They  have  corrected  some  of  his  M^>^^  ^ 
errors  and  perpetuated  others  of  them,  have  made^  nxi^u^*-^'^ 
additional  contributions  to  the  science  in  several 
respects,  but  in  the  main  have  followed  out  his  prin- /^  .  <; 

ciples,  —  like  him,  for  the  most  part,  confining  theiry  ./-     I* 
discussions  of  value  to  material  commodities,  regardT^  * 

ing  labor  ratljer  than  desire  as  the  cause  of  value, 
ignoring  personal  services  as  such,  and,  till  recently, 
giving  little  attention  to  the  great  subject  of  credit. 
Mr.   Malthus,   author  of   a  very  famous  theory   of  ^2i^^*^a  : 
population ;  Mr.  Ricardo,  author  of  a  scarcely  less  97isU^dii,^ ; 
famous  theory  of  rent,  —  both  of  which  theories  will/ct.V.^-K-'^-a; 
be  considered  further  on  in  these  pages;  Mr.  McCul- ;'':  - 
loch,  a  copious  and  very  useful  writer,  who  clearly 
discriminates  between  utility  and  value,  but  errone- 
ously regards  labor   as  the  sole   constituent  in  the 
latter;  Mr.  Senior,  author  of  the  able,  but  not  suffi-- '-to-o.c^^^/ 
ciently  comprehensive,  treatise  in  the  "  Encyclopedia    .5,  H^a 
Metropolitana ; "  and  Mr.  John   Stuart  Mill,  whose 


30  ELEMENTS   OF  POLITICAL  ECONOMY. 

recent  death  has  been  so  much  deplored,  and  whose 
book  has  been  widely  and  deservedly  read  in  both 
hemispheres,  but  who  with  all  his  logical  power  was 
.      not  always  consistent  with  himself,  who  attempted 
4^A07ftxu'     ^^  j.^^^  ^j^g  superstructure  of  our  science  upon  quite 
too  narrow  foundations,  and  who  made  an  unneces- 
sary and  unlucky  admission  in  regard  to  protective 
tariffs,  which  the  enemies  of  Free  Trade  have  been 
prompt  to  quote  against  him  and  his  whole  school ; 
are  the  principal  figures  in  the  long  array  of  writers 
of  this  school.     They  have  the  great  reputation  that 
iJUa,aAc)^     attends  indubitable  success.     They  have  put  the  doc- 
/^.£3Cyvw..     trines  of  Free  Trade  upon  an  immovable  basis  in 
/y^c^.%^J^(  ■  England,    and    thus    exerted    a    potential   influence 
towards  their  establishment   throughout  the  world. 
.     .  /   /      The  definition  of  the  science,  to  which,  in  general, 
2-:      ,      '■      they  would  all  assent,  is,  The^ science  which  treats 
of  the   Production,  Distribution,  and   Consumption 
of'Wealth. 
Xlci^J^f^^^'-      ^r.   Horner,   Mr.   Thornton,  and   Mr.  Huskisson, 
Yio.Xu        were  the  joint  authors  of  the  Bullion  Report  made 
•w>v.^trvHato  Parliament  in  1810,  in  which  the  true  principles 
^cXC^  fr-i      of   metallic    and   of  paper  money   are   stated  with 
aU*  £Uv<U  .    demonstrative    ability.     Since   the    passage   of    the 
.^^^^^^^      '        Bank  Act  of   1844,   English  writers  have   given   a 
'  great  deal  of  attention  to  the  theory  of  credit.     Mr. 

Macleod's  "  Theory  and  Practice  of  Banking,"  ]Mr. 
Patterson's  "  Economy  of  Capital,"  Mr.  Bonamy 
Price-s  "  Principles  of  Currency,"  Mr.  Hankey,  Mr. 
Lawson,  and  an  able  anonymous  author,  all  "  On  the 
Bank  of  England,"  are  very  useful  books.  Mr.  Faw- 
cett's  "  Political  Economy "  would  deserve  to  be 
noticed  in  any  case,  but  becomes  remarkable  when 


>fr<-*v>'C' 


HISTORY  OF  THE  SCIENCE.  Hi 

it   is   remembered    that   the   author   is   blind.     Mr. 
Jevons,   of  Manchester,  is    an    economic   writer  of  olc/v-*^.^ -  i 
great  originality  and  of  severe  scientific  method;  but  h-*^'^-^"'-^ - 
he  seems  to   me  to  err  in   making  the  science  too 
exactly  mathematical  and  formal. 

Mr.  Macleod,  the  latest  English  author  of  note  in  0>y..c^JU-% 
this  field  of  inquiry,  the  first  volume  of  whose  "  Prin-  /yd^^^^^^^j^^jx* 
ciples  of  Economical  Philosophy  "  appeared  in  1872,^ ^^«  TU^'- 
is  a  very  able,  and  almost  the  only  recent  English,  5.  .iU-^ 
representative  of  the  third  school  of  economists,  soon 
to  be  characterized.     Their  definition  of  the  science/  -wl 
is  the  one  enforced  in  these  pages  also,  namely,  H\\%H^J^^t 
Science  of  Exchanges.    This  definition  is  drawing  to^'ViJ^-H^  1^ 
itself  the  most  recent  investigators  in  France,  Eng- 
land, and  America;  and  the  scientific  development  z*^,,^!^ 
of  it  has  already  put  political  economy  into  a  new  ^*^  M^  i 
and    better   posture.      According   to   this   view,   ex-  ^oL«u.-«p 
changeability  is  the  only  quality  requisite  to  bring 
any  service,  commodity,  or  claim  within  the  sphere 
of   economic   regulation.     Several   editions    of   the 
present  treatise  had  been  issued  before  I  had  seen 
any  of  Mr.  Macleod's  books,  and  to  the  numerous 
points   of   our  independent  coincidence   have  been 
added,  in   my  later  editions,  many  points  of  infor- 
mation in  matters  of  fact,  and  some  distinctions  in 
matters  of  science,  for  which  I  wish  to  express  my 
obligations  to  him. 

If  the  French  have  done  less  than  the  English  in  l\\^cYi 
building  up  the  science  of  Political  Economy,  they 
have  done  well  what  they  have  done.     They  have  ^u-^ut^:«Z  >k 
the  honor  of  publishing  the  very  first  general  treatiseff^'»'**^*<-/?M-. 
under  the  title  of  "  Political  Economy."  It  w^as  issued"^***  ^'^^  ^ 
at  Rouen  in  1615.     To  them  also  is  due  the  credit       ' 


32  ELEMENTS    OF  POLITICAL  ECONOMY. 

of  having  furnished  the  first  writer  who  undertook 
a  systematic  analysis  of  the  sources  of  value,  and 
whose  ingenious  speculations  gave  rise  to  the  first 
school  of  Political  Economy.  This  was  M.  Ques- 
nay,  a  physician  attached  to  the  court  of  Louis  XV., 
whose  book  was  published  in  1758.^  His  funda- 
mental positions  expressed  the  reaction  from  the 
principles  of  the  Mercantile  System  as  embodied  in 
the  policy  of  Colbert,  the  famous  finance  minister  of 
Louis  XIV.  That  policy  gave  a  decided  preference 
to  the  industry  of  the  towns  and  cities.  M.  Ques- 
nay  appeared  as  the  champion  of  agriculture.  His 
system  assumes  that  the  physical  earth  is  the  only 
•source  of  wealth,  and  consequently  that  labor  is 
incapable  of  producing  any  new  value  except  when 
employed  in  agriculture.  Artisans  and  merchants 
are  unproductive  laborers,  because  there  is  no  nett 
produce  remaining,  as  in  agriculture,  over  and  above 
the  expenses  of  production.  The  system  mistook 
the  nature  of  rent;  and  falsely  though  tacitly  as- 
sumed that  wealth  consists  in  matter.  The  novelty 
of  the  theory  however,  its  scientific  shape,  and  the 
liberal  commercial  policy  coupled  with  it,  gave  it  foi 
a  time  a  great  reputation ;  and  it  numbered  among 
its  disciples  no  less  persons  than  Turgot,  the  finan- 
cier, and  the  elder  Mirabeau.  The  former,  when  he 
became  controller-general  of  the  French  finances  in 
^  .  1774,  proposed,  in  accordance  with  the  principles  of 
•Jp?  ^  /''^'V  Quesnay,  the  freedom  of  labor  at  home  and  of  trade 
'*^***  >/77^'  abroad,  and  the  substitution  for  existing  taxes  on  a 
multitude  of  articles,  of  a  single  tax  on  land  ;  and  the 
latter  was  so  far  carried  away  by  zeal  for  his  master, 

1  Adam  Smith.    Book  iv.,  chap.  ix. 


HISTORY   OF  THE  SCIENCE.  33 

that  he  puts  his  work,  in  point  of  benefit  to  mankind,  SLv4*^*  ^ 
on  a  level  with  the  invention  of  writing  and  the  in-  a.^/-*^  Wv^ 
vention  of  money.    The  numerous  disciples  of  Ques-  K^^^^^*-'-^''*'^ 
nay  were  called  Physiocrats,  and  exerted  so  power-  ^^^^^ 
ful  an   influence  in  France,  that  in  1786,  William  P^t^ir*^^ 
Pitt   had    little    difficulty   in    concluding   with    the 
French   Government   a   Treaty    of  Commerce   and  vv-t^"t^ 
Navigation,  by  which  was  established,  on  the  P^y-*^^*^^^    »^ 
ment  of   moderate  duties,   "reciprocal  and  entirely ''X^     ' 
perfect  liberty  of  navigation  and  commerce  between'  **"** 

the  subjects  of  each  party  in  all  and  every  the  king- 
doms,  states,   provinces,   and   territories,  subject  to 
their  majesties  in  Europe  for  all  and  singular  kind 
of  goods  in  these  places."     This  excellent  treaty  was 
soon  swept  away  by  the  oncoming  of  the  French (^.inmJj^^  ^♦-^^ 
Revolution,  in  whose  councils  nevertheless  the  prin-TA^  fnu^J^ 
ciples  of  the  Physiocrats  held  a  strong  sway,  as  is^^tv^^t^^t^v^ . 
especially  seen  in  the  decree  for  the  equal  division o^%.*%4.*,i.*^  i 
of  lands,  which  has  been  the  strength  of  France  everv»S^y  V4 
since.     The  system  of  the  Physiocrats  is  sometimes 
named   the   "  Agricultural   System "  in   distinction 
from  the  Mercantile  System. 

To  make  the  year  1776  doubly  memorable  in  the{?<>^^*>^ 
history  of  this  science,  the  French  philosopher  Con-        -'^-^ 
dillac  published   in  that  year  a  work  entitled   "Ze 
Commerce  et  le  gouvernement  considerSs  relativement 
Vun  a  Vautre^     This  work  was  comparatively  neg^ 
lected  at  the  time,  and  has  never  shared  the  popular'  . 
favor  accorded  to  the  other  writings  of  the  same  au- 
thor, but  the  definition  of  the  science  given  in  it, 
namely,  that  it  is  the  science  of  commerce,  found 
many  years  afterwards  an  intelligent  champion  inCK> 
Archbishop  Whately,  to  whom  the  definition  is  com-U^iv<vtcCu. 


^ *  b  Q/l/i  OSS  w 


34  ELEMENTS    OP   POLITICAL   ECONOMY. 

/  monly  and  perhaps  properly  referred ;  and  they  must 

rij  f  ^^  regarded  as  the  founders  of  the  third  great  school 
of  political  economists,  whose  most  distinguished 
£^j  ^^  .  modern  representatives  have  been  Bastiat  in  France 
and  Macleod  in  England.  In  his  lectures  delivered 
at  Oxford  in  1831,  Whately  proposed  as  a  good 
name  for  our  science  the  term  Catallactics^  the 
science  of  exchanges ;  very  recently  Macleod  has 
proposed  the  term  Economics  ;  it  is  not  likely  that 
either  the  one  or  the  other  will  ever  supersede  the 
old  Aristotelian  term. 

In  1803,  appeared  in  Paris,  Say's  "  l^raite  dficono' 
mie  politique,^'  which  soon  became,  and  is  even  yet,  a 
standard  work.  Say  is  a  skilful  expositor  of  the  sci- 
ence, an  able  advocate  of  the  freedom  of  commerce, 
and  the  original  contributor  of  the  important  demon- 
stration that  there  cannot  be  a  general  glut  of  prod- 
ucts —  a  general  over-production.  His  doctrine  of 
value,  however,  is  infected  with  a  fundamental  error, 
namely,  the  confusion  of  value  with  utility,  which 
one  of  his  own  countrymen  was  destined  completely 
to  expose,  and  to  replace  with  the  nucleus  of  satisfac- 
tory truth.  Say  is  rather  a  follower  of  Adam  Smith 
than  of  Condillac,  and  belongs  accordingly  rather  to 
the  second  than  the  third  school  of  political  econ- 
omists. 

Frederic  Bastiat,  who  had  previously  shown  him- 
self a  powerful  champion  of  Free  Trade,  and  the 
most  formidable  antagonist  of  Socialism  in  France, 
published  in  Paris  in  1850  a  book  entitled  "  Har- 
monies ^conomiquesj''  which  carried  Political  Econ- 
omy to  a  very  advanced  position,  and  is  the  most 
important  contribution  to  the  science  since  the  time 


-t.  i^^\  .\\ ' 


l^^iA^'*^^       HISTORY    OF   THE   SCIENCE.  35 


of  Adam  Smith.     The  gifted  author  died  the  same 
year   in   which    his   book    appeared,  leaving   unfin-     . 
ished  an  intention  to  recast  and  complete  it.     It  is  CA>-»^c/^ 
not  strictly  a   treatise  of  Political  Economy,  as  ^^lKK.%^fy^y^ 
does  not  touch  upon  several  of  the  most  importantcv^v-<^,  /^ 
subjects  comprehended  in  that  title,  such  as  Money,         • 
Foreign  Trade,  Taxation,  and  others,  but  there  is  in  ,^., 

it  a  masterly  definition  and  exposition  of  value,  and 
a  vigorous  demonstration  of  the  harmonious  mechan-  ^.^  ^ 
ism  of  society,  by  which,  through  the  agency  of  lib- 
erty and  property,  God  has  designed  the  progressive 
amelioration  of  mankind.  "  All  legitimate  interests 
are  in  harmony  "  is  the  key-note  of  the  book.  Bas- 
tiat  encumbers  his  discussions  by  the  attempt  to  use 
technically  the  term  "  wealth,"  and  his  chapter  under  '  -»^ 
that  title  is  singularly  perplexed  and  confused,  afford-  ^ 

ing  again  for  the  hundredth  time  an  illustration  of 
the  impossibility  of  using  that  word  to  advantage 
for  any  scientific  purpose  whatever.  While  unfold- 
ing the  laws  of  value  in  their  manifold  applications,  ^ 
Bastiat  incidentally  but  most  effectually  demolishes 
the  vagaries  of  communism,  and  establishes  the  right 
of  property  upon  unassailable  grounds.  It  is  a 
pleasure  to  acknowledge  in  the  amplest  manner  one's 
indebtedness  to  such  a  quickening  writer  as  M.  Bas- 
tiat is.  Whoever  will  compare  carefully  with  his^-*-'*^  -*^ 
book  the  following  chapters  on  Value  and  Land, 
will  see  how  much  I  have  profited  by  his  discus- 
sions; and  he  will  also  see  that  I  have  made  an 
independent,  not  a  servile,  use  of  them.  It  is  hoped 
that  the  relations  of  utility  to  value  are  even  more 
clearly  and  ultimately  put  than  he  has  put  them. 
Not  to  have  availed  myself  of  the  truths  which  he 


^J 


ZQ  ELEMENTS  OF  POLITICAL  ECONOMY. 

has  actually  established  would  be  as  unjust  to  sci- 
ence, as  not  also  to  have  endeavored  in  the  chapters 
on  Exchange  and  Foreign  Trade  to  execute  the  com- 
mission which  he  left  to  his  readers  in  these  words  : 
—  "J  hope  yet  to  find  at  least  one  among  them  who 
will  he  able  to  demonstrate  rigorously  this  proposition : 
the  good  of  each  tends,  to  the  good  of  all,  as  the  good 
of  all  tends  to  the  good  of  each  ;  and  who  will,  more- 
over, be  able  to  impress  this  truth  upon  merCs  minds  by 
rendering  the  proof  of  it  simple,  lucid,  and  irrefrag- 
ableJ^  ^  M.  Bastiat  defines  Political  Economy  as  the 
Theory  of  Exchange,  and  Value  as  the  Relation  be- 
tween two  Services  exchanged.  His  system  turns 
on  the  technical  use,  definition,  and  analysis  of  the 
term  Services.  He  derives  all  the  economic  phenom- 
ena out  of  the  fundamental  facts  of  human  Wants, 
Efforts,  and  Satisfactions.  Value  cannot  exist  sep- 
arately from  human  efforts.  Utility  resides  in  the 
materials  and  forces  of  Nature.  "  But  these  natural 
forces,  in  themselves,  and  apart  from  all  intellectual  or 
bodily  exertion,  are  gratuitous  gifts  of  Providence, 
and  in  this  respect  they  remain  destitute  of  value 
through  all  the  complications  of  human  transactions. 
This  is  the  leading  idea  of  the  present  workP  Thus 
he  himself  expresses  the  matter.^ 

Michel  Chevalier,  Professor  of  Political  Economy 
^       in  the  College  of  France,  a  friend  and  disciple  of 
Bastiat,  very  distinguished  for  his  part  in  negotiating 
the  commercial  treaty  with  England  in  1860,  is  the 
most  prominent  living  economist  in  France? 
"^"^^w//-       'I'he  Italian  writers,  though  voluminous  and  re- 

/v;  i  1  Stirling's  Translation  of  the  Harmonies,  page  92. 

2  Stirling's  Translation,  page  62. 


HISTORY  OF  THE  SCIENCE.  37 

spectable,  have  originated  comparatively  little  within  ^^/^^ 
the  field  of  this  science.     The  earliest  of  them  in- 
vestigated especially  the  nature  of  money,  and  came 
to  the  sound  conclusion  that  governments  have  no 
right  to  tamper  with  the  standard  of  value  used  by 
their   subjects.     Italy  too,    as   well   as  France   and^^^^g^-^,,*^ 
England,  felt  the  strong  reaction  against  the  Mer-/;^^^^  ^  £; 
cantile   System  during  the   latter  half  of  the  eigh- 
teenth century.     In  1764,  the  first  professorship  of 
Political   Economy  ever  established  was  instituted ^•^'^'^ 
at  Naples,  and  Antonio  Genovesi  was  appointed  to  ^  ""-^ "^^i^ ' 
lecture  in  it.     He  was  an  ardent  Free  Trader.     So^^ 


also  was  Beccaria,  appointed  to  a  similar  professor-  ^^.; 
ship  instituted  in  Milan  in  1768.     So  also  was  their  , 
contemporary  Verri.    A  collection  of  the  best  Italian 
writers   on  the  subject  was  undertaken,  under  the 
patronage  of  Napoleon,  in  1803,  and  subsequently 
completed  in  fifty  volumes  octavo.  ^ 

The   Germans   have  done  more  perhaps  for  tbe  ^ 
science  of   economy  through   their  public  action  in 
t^e  Zollverein,  than  through  the  private  contributions 
of  their  numerous  economical  writers.     The  Zollve-  Zollv 
rein,  or  Customs  Union,  was  commenced  by  Prussia 
in  1818,  and  has  received  the  adhesion  from  time  to 
time  of  other  German  States,  until  now  it  embraces    .  J^  ^^ux 
all  of  Germany  except  Austria.     Within  this  broad 
territory,  embracing  a  population  of  above  38,000,000, . 
the  duties  on  imports  are  uniform,  and  uniformly 
low;    and   there  is  no  duty  on  exports  except  on 
paper-rags.i      All  interior  custom-houses  are  swept   . 
pway.     No  foreign  articles  are  excluded;  many  are 
admitted  free  of  duty ;  and  those  on  which  duty  is 
charged  are  arranged  in  thirty-seven  simple  classes, 

1  Zolltarif  des  Deutschen  Zollvereins  vom  1.  Juni  1868  ab  giilti^. 


38  ELEMENTS  OF  POLITICAL  ECONOMY. 

the  duties  being  always  specific  (generally  by  the 
hundred  weight),  except  in  the  case  of  carriages  and 
ships,  on  which  the  duty  varies  from  five  to  ten  per 
cent,  of  value.  The  commercial  prosperity  induced 
by  these  liberal  regulations,  the  steadily  enlarging 
revenue  from  these  low  duties,  and  the  growth  of 
domestic  industry  by  the  side  of  these  practically 
unrestricted  importations,  have  taught  the  world  a 
more  valuable  lesson  than  often  falls  to  the  lot  of  an 
individual  thinker  to  teach.    Seeing  these  undoubted 

.  t^         advantages,  Austria   has   concluded  a  similar  ZoU- 

??»A  verein  with  her  dependent  states,  Hungary  arid  Dal- 
matia,  covering  in  all  35,000,000  souls,  and  with 
similarly  gratifying  results.     Their  tariff  classes  are 

^  ^  only  twenty-two  in  number,  and  their  duties  on  im- 

ports amounted  in  1871  to  23,522,156  florins.  The 
German  Zoll verein  has  lately  made  liberal  com- 
mercial treaties  with  Austria,  Italy,  and  Spain,  and 
is  managed  by  a  customs'  parliament  chosen  on 
the  principle  of  universal  suffrage  by  the  people 
included  in  the  confederation.  It  is  true  that  the 
founders  of  the  ZoUverein  were  not  wholly  free  from 

^       -     the  prejudices  of  the  mercantile  system,  but  the  re- 

'  suits   of   the   experiment   so   far   confirm    anything 

rather  than  the  principles  of  that  system.     Friede- 

i^^i,\  rich  List,  an  early  champion  of  the  ZoUverein,  some 
time  also  a  resident  of  the  Uriited  States,  who  pub- 
lished in  English  his  "  Outlines  of  a  New  System  of 
Political  Economy,"  at  Philadelphia,  1827,  and  "Das 
Nationale  System  der  politischen  Oekonomie^''  in 
Stuttgart,  1841,  and  who,  while  advocating  the  prin- 
ciple of  protection  in  his  books,  displayed  a  multifa- 
rious Activity  in   behalf  of  many   liberal  schemes ; 


HISTORY  OF  THE  SCIENCE.  39 

Ludwig  Stein,  Professor  in  Vienna,  an  indefatigable  ^Xc-^<^ 
writer  and  zealous  free  trader;  and  Professor  Rau, 
of  Heidelberg,  a  correct  and  forcible  writer  and   a 
popular  lecturer,  may  suffice,  as  examples  merely,  of  f^-'^^ 
the  individual  winters  of  Germany. 

The  circumstances  of  the  United  States,  as  well(2^^^^^ 
in  colonial  vassalage  as  in  an  independent  position,!  , 

their  experience  with  almost  every  variety  of  paperr'''*'*'*'^^ 
money,  the    alternations  of   the  national  policy  jn'^'^^*^^^- 
respect  to  trade,  the  long  continued  public  discus-^'^*'^  ^^ 
sions  on  the  tendencies  and  results  of  a  protective   **"'   ^ 
tariff,  and  the  efforts — State  and  National  —  which 
have  been  made  towards  realizing  a  healthful  cur- 
rency, have   been   favorable  to   the  cultivation    of 
economical  studies.      To  these  circumstances  may 
now  be  added  the  pressure  of  a  vast  public  debt,  the 
opportunity  of  watching  the  operation  of  a  national 
banking  system,  and  the  interest  attaching  to  the 
production  of  gold  and  silver  in  the  western  half  of 
the  continent.      Attention  to   this   subject,  however 
great  heretofore,  is  likely  to  be  greater  in  the  time  to^ 
come. 

The  Reports  of  the  Secretaries  of  the  Treasury,/^|.<^^  a 
particularly  those  of  Mr.  Hamilton,  Mr.  Gallatin,  Mr.«^%^^ 
Walker,   and    Mr.    McCulloch,   have   treated    many 
branches  of  the  subject  with  marked  ability.     Much 
economical  truth  has  been  brought  out  also  in  con- 
gressional  speeches,  for   example,  in  those   of   MrA<***-^V- 
Webster,    Mr.    Calhoun,    Mr.    Benton,    Mr.    Silas 
Wright,  and   lately  Mr.  Scburz,  Mr.    Garfield,  and 
Mr.  Cox ;  but  it  cannot  be  said  that  the  usual  action 
of  Congress  has  been  guided  by  much  economical 
wisdom.     Late  debates  on  the  tariff  and  on  the  cur- 


40  ELEMENTS  OF  POLITICAL  ECONOMY. 

rency  have  shown,  however,  on  the  part  of  some 
members  of  both  houses,  a  thorough  comprehension 
of  tiie  principles  that  underlie  those  questions.  Con- 
gressional reports,  like  that  of  John  Quincy  Adams 
on  Weights  and  Measures,  have  illustrated  portions 
of  the  subject.  Mr.  David  A.  Wells,  as  Special 
Commissioner  of  the  Revenue,  has  presented  such 
facts  and  reasonings  in  relation  to  the  national  in- 
dustry) commerce,  and  currency,  as  have  deserved 
and  have  received  the  profound  attention  of  the 
^^  1^'f'^  people.  The  census  of  1870,  prepared  under  the 
superintendency  of  Gen.  F.  A.  Walker,  is  a  thesaurus 
of  facts  useful  for  economical  illustration.  Writers 
on  economical  subjects  for  the  press  have  exerted  a 
a  large  influence ;  I  mention,  by  way  of  example 
merely,  John  Y.  Smith  of  Wisconsin,  Horace  White 
of  Chicago,  S.  E.  Reed  of  Cincinnati,  Isaac  Butts 
of  Rochester,   Parke    Godwin,  E.  L.  Godkin,  and 

D.  M.  Stone  of  New  York.  Treatises  more  or  less 
formal  and  complete  have  been  written  by  Daniel 
Raymond  (1820),  John  Rae  (1834),  Henry  C.  Carey 
(1835-1860),  Professor  Vethake,  President  Wayland, 
Stephen  Colwell,  George  Opdyke,  Professor  Bowen, 

E.  Peshine  Smith,  Professor  Bascom  (1859),  Charles 
Moran  (1860),  E.  B.  Bigelow  (1861),  Amasa  Walker 
(1866),  John  A.  Ferris  (1867),  George  A.  Potter 
(1868),  E.  G.  Spaulding  (1869),  Horace  Greeley 
(1870),  W.  M.  Grosvenor  (1871),  William  Elder 
(1872),  and  by  others.  Most  of  the  above  writers 
may  be  reckoned  to  belong  to  the  second  great 
school  of  economists. 

r.  ^o^c^. ,  The  economical  works  of  Mr.  Carey  are  to  be  no- 
ticed the  more  particularly,  because  he  claims  as 
original  with  himself  some  of  the  fundamental  posi- 


HISTORY  OF  THE  SCIENCE.  41 

tions  of  M.  Bastiat.    It  is  certain  that  these  positions  4W? 
are  common  to  the  two  writers  ;  and  it  is  to  be  pre  .^^^  >3#< 
Bumed  that  M.  Bastiat  profited  by  some  of  the  viev^s 
of  Mr.  Carey  ;  but  there  is  enough  that  is  distinctive 
in  the. two  authors  to  justify  the  claim  of  each  to 
both    originality   and    merit.     Among    Mr.    Carey's  yj  ;  f: 

central  principles  may  be  enumerated  the  following :  ^^*1 
That  land  gains  its  value  from  labor;  that,  generally,' 
poorer  soils  are  first  cultivated,  then,  tiiose  more  fer- 
tile and  difficult :  that,  what  would  be  the  cost  of 
their  reproduction  rather  than  their  actual  cost  of 
production,  determines  the  value  of  commodities ; 
that  the  interests  of  classes  and  individuals  are  really 
harmonious  ;  that  there  is  a  tendency  to  increase  in 
the  wages  of  labor,  and  to  diminution  in  the  rate^ 
though  increase  in  the  aggregate  of  the  profits  of 
capital ;  that  the  advancement  of  society  corresponds 
to  the  degrees  of  association  and  liberty  in  it ;  and 
that  the  prices  of  land,  labor  and  raw  materials  tend 
to  approach  the  prices  of  finished  commodities. 

Mr.  Amasa  Walker's  "  Science  of  Wealth  "  has  UTt'-l^^^^^ 
already  passed  through  several  editions,  and  is  a-^e..^.^.  ^I^ 
very  high  authority  on  all  questions  of  Political 
Economy.  On  the  subject  of  Currency  it  is  par- 
ticularly original  and  full.  Wages,  Trade,  and  Tax- 
ation are  also  subjected  in  it  to  admirable  analysis 
and  discussion. 

A  second  edition  of  Professor  Bowen's  "  American  Kjoi^^^'y 
Political  Economy"  has  been  recently  published,  p^  c^^^^ 
As  his  treatment  of  the  various  questions  of  Money 
was  the  strong  point  in  the  original  edition  of  1856, 
so  his  copious  discussion  of  the  recent  financial  ex- 
perience of  the  United  States  constitutes  a  chief 
merit  in  the  book  as  it  now  appears. 


42  ELEMENTS    OF    POLITICAL  ECONOMY. 


4. 


CHAPTER  11. 

FIELD   OF  THE   SCIENCE. 

In  the  preceding  chapter  on  the  History  of  the 
Science,  I  have  used  the  term  "Science"  without 
strictly  defining  it.  It  is  time  now  to  inquire  ex- 
actly what  a  science  is  in  general,  and  what  is  the 
precise  field  of  the  science  of  Political  Economy  in 
particular. 

A  Science  is  the  body  of  exact  definitions  and  sound 
principles  educed  from  and  applied  to  a  single  class 
of  facts  or  phenomena. 

There  must  be  a  class  of  facts  before  there  can  be 
>  &^\^*Li  a  science  of  them ;  and  the  conception  or  definition 
must  include  everything  that  possesses  the  quality 
that  is  the  subject  of  investigation.  In  other  words, 
the  terms  of  a  science  are  general,  and  not  partic- 
ular. From  the  very  nature  and  purpose  of  a 
science,  as  well  as  from  the  mode  in  which  alone  it 
can  be  built  up,  it  cannot  tolerate  facts  that  come 
partially  but  not  completely  under  its  fundamental 
definition.  This  definition  must  strictly  constitute 
a  class  of  things,  that  is,  include  all  things  that 
really,  for  the  purposes  of  the  investigation,  belong 
together.  Thus  arithmetic,  as  the  science  of  num- 
ber, must  be  inclusive  of  all  things  whatsoever  that 
can  be  numbered ;  while  the  other  qualities  of  those 
very  things,  besides  number,  may  well  subject  them 


FIELD   OF   THE  SCIENCE.  43 

to  still  other  sciences.     So,  if  Political  Economy  he rij.^,,,,^  en/j 
the   science  of   exchanges,   it   must    include    in    its^  .  ^  /^ 
scientific  view  all  things  whatsoever  that  are  eco- 
nomically exchanged.     Exchangeability  will  be  the^^^  ^.^^4^^^ 
quality   that   constitutes   the   class   of  things   with-^^j^J.^ 
which  the  science  is  conversant.     There  is  such  a«-        ^ 


class  of  things  ;  and  accordingly,  Political  EconomyX*^    «-«ft 
possesses  the  first  grand  condition  of  a  science.  ^>-e«^n-w./- 

There  are  two  processes  concerned  in  the  building  ^^^^l^^^^ 
up  of  sciences,  namely,  first,  Induction,  and  second, 
Deduction.     Induction  is  the  process  by  which  we  oM,  vwci^ 
pass  from  less  to  more  inclusive  propositions;  and<'(9W*^t€«^ 
Deduction  is   the   process  by  which  we   pass  from 
more  to  less  inclusive  propositions.     The  subsidiary 
process  of  Verification  must  of  course  accompany  i/L,-t^<c^ 
the   two  fundamental   processes,   in  order  to   make  v-^-^/^  f 
sure  that  they  have  been  correctly  performed  ;  but 
verification  itself  is  nothing  but  a  new  induction  or 
deduction,  in  different  terms,  made  to  test  the  valid- 
ity of  the  former  one.     With  the  exception  of  pure ^4^^,^,^^;  ^ 
Mathematics  and  the  formal  Logic,  which  are  wholly  ^b^^^^^^.. 
deductive,  all  sciences  appear  to  be  both  inductive^L^<  ;?"4^^ 
and  deductive  in  their  methods;  and  this  is  certain ly  =^ ""7 '*■ 
the  case  with  Political  Economy,  which   offers    an^^  '^'^ 
ample  field  for  both   processes.     Its   present  defini-o<^L/  /.   ,  •  o^ 
tions  and    principles  have   been  slowly  reached   by 
unnumbered  inductions  from  particular  facts,  as  well 
as  through  unnumbered  corrections  and  verifications 
secured  by  deduction  from  principles  accepted  at  the 
time.     The  two  processes    go  on  hand  in  hand  at 
every  step.     If  the  science  be  not  now  one  of  as- 
sured position  and  of  commanding  influence,  it  is 
not   because    the    processes    by    which    other  great 


M' 


44  ELEMENTS   OF   POLITICAL  ECONOMY. 

sciences  have  been  built  up  are  not  equally  open  t>«. 
this,  nor  because  the  facts  which  it  surveys,  which 
have  been  and  are  of  vast  consequence  to  the  wel- 
fare of  mankind,  do  not  lie  in  a  definite  and  accessi- 
ble field. 

Lord  Bacon  was  the  author  of  the  true  doctrine 
of  Generalization,  that  is  to  say,  of  the  method  of 
building  up  sciences.  If  he  himself  put  more  em- 
phasis on  the  inductive  part,  that  is,  on  the  gather- 
ing up  of  general  definitions  and  propositions  from 
particular  instances,  it  was  owing  to  the  reaction 
from  the  opinions  and  practice  of  his  time ;  never- 
theless, he  did  not  neglect  the  deductive  part,  that 
is,  the  application  of  general  principles  inductively 
obtained  to  the  explanation  of  new  cases.  He  says: 
"  Axioms  duly  and  orderly  formed  from  particulars 
easily  discover  the  way  to  new  particulars,  and  thus 
render  sciences  active.'^  ^  Political  Economy  is  one 
of  the  most  fortunate  of  the  sciences,  in  that  it 
offers,  in  the  commercial  experience  of  all  nations, 
and  in  the  constantly  recurring  examples  of  ex- 
change under  the  widest  possible  variety  of  other 
circumstances,  abundant  opportunities  to  frame  in- 
ductively and  test  deductively  every  one  of  its  defi- 
nitions and  propositions.  Experience  is  to  this 
science  what  experiment  is  to  some  of  the  other 
sciences.  It  has  also  a  great  resource  in  feigned 
r  ,^  cases,  which,  provided  only  that  they  be  cases  pos- 
sible to  occur,  afford  a  potent  and  often  available 
means  of  educing  or  testing  its  principles.^  Political 
Economy,  accordingly,  richly  possesses  the  second 
of  the  conditions  of  a  great  science. 

1  Novum  Organon,  i.  24,  quoted  by  Mr.  Macleod. 

2  See  Macleod's  Economical  Philosophy,  p.  27. 


^U, 


FIELD   OF  THE   SCIENCE.  45'^,^^':" 'r' /'"^' 

Sciences  may  be  divided  into  physical  and  moral /^'^y*^'^'^ 
sciences.    Physical  sciences  are  those  concerned  with$&i^e<»  - 
the  classifications  and  laws  of  action  belonfi^inoj  to^ 
material  substances;  while  moral  sciences  are  those'^'!;*'^*^' 
concerned  with  the  classifications  and  laws  of  action 
belonging  to  beings  possessed  of  desires  and  of  will.  ^^i^<^  ^**^ 
In  the  sense  of  this  distinction,  Political  Economy '^"'^^f""^ 
is  a  moral  science;   inasmuch   as  it  is  exclusively ^'^-  £c^^^  1 
concerned  with  those  circumstances  and  actions  of^  ^w^ttx?. 
men,  which  find  their  end  in  the  determination  of'^^'^^^'*^ 
value;  and  since,  as  will  be  abundantly  shown  here-  t"'^^^**^^;' 
after,  no  value  was  ever  determined,  or  ever  can  be,'^7- 
except  through  the  desires  and  will  of  men.     It  ^o^i'^Pj^.^c^^ 
happens  also,  that  while  there  is  much  in  the  con-  ;..^-.-<: 
duct  of  all  men  that  is  variable  and  uncertain  be- 
forehand owing  to  their  free  will,  that  part  of  their 
conduct  that  is  related  to  the  creation  of  values  has 
been  observed  to  be,  under  given  conditions,  remark- 
ably uniform  in  all  ages  and  countries.     The  desire 
to  possess,  the  impulse  to  exchange,  the  repugnance 
to  labor  except  in  view  of  a  return,  the  pressure  of 
recurring  wants,  and    the   satisfaction    experienced 
when  these  wants  are  met,  are  the  most  certain  and 
universal  attributes  of  human  nature;  they  are  all 
open  to  observation  and  experience ;  the  strength  of 
the  impulses  is  capable  of  being  measured  through 
their  results,  and  of  being  expressed   numerically; 
and,  accordingly,  of  all  the  moral  sciences.  Political 
Economy  is  that  one,  which  has,  perhaps,  the  broad- 
est and  firmest  footing,  which  is  already  the  most 
fully   developed,   and  whose  chief  propositions   are  ^uJaJL^ 
least  likely  to  be  overturned  by  any  probable  changes  c%%--^^- 
of  the  future.     Its  methods  are  entirely  similar  to/ 


46  ELEMENTS    OF  POLITICAL  ECONOMY. 

those  of  the  chief  physical  sciences,  and  its  main 
conclusions  scarcely,  if  any,  less  secure  than  theirs. 
There  is,  however,  another  current  sense  of  the 
ll<4^  *c^w,v    word  "  moral,"  in  which  Political  Economy  is  not  a 
^^^•^'  -^^      moral  science  at  all;  and  that  is  the  sense  in  which 
/  rU'  ^•^-'     it  is  used  as  synonymous  with  "  ethical,"  or  "  oblig- 
*  ^^^*-<^       atory."      Paley  defines  Ethics    as    "  the  science  of 
'^^'  ".  '       Duty  and  the  reasons  of  it;"  and  it  is  in  this  ethical 
(  '  '    ''"     sense  that  we  speak  of  the  science  of  Morals.     Now, 
*^"^  -  this    idea   of  obligation,   on   which    the    science  of 

morals  is  founded,  and  the  idea  of  value  on  which 
the  science  of  economy  is  founded,  are  totally  dis- 
tinct ideas.  There  is  one  word  that  marks  and  cir- 
cumscribes the  field  of  morals.  That  word  is  Ous^ht. 
^  There  is  one  word  that  marks  and  circumscribes  the 

'^^  field  of  economy.     That  word  is  Value.     Political 

Economy  does  not  aspire  to  place  its  feet  upon  the 
.  ponderous  imperatives  of  moral  obligation.  It  find/^ 
.4,^  t'^^pj.  ^  solid  and  adequate  footing  upon  the  expedient  and 
^^,t^yj^j.  the  useful.  As  a  science,  it  does  and  must  discuss 
and  decide  all  questions  upon  economical  grounds 
alone.  As  a  science,  it  has  no  concern  with  ques- 
^v-  ^^^-.  tions  of  moral  right.  If  it  favors  morality,  it  does  so 
^^  K  because  morality  favors  production.  It  favors  hon- 
esty because  honesty  favors  exchange.  It  puts  the 
seal  of  the  market  upon  all  the  virtues.  It  condemns 
\  '^"  slavery,  not  because  slavery  is  morally  wrong,  but 
^'*"'^'  /'because  it  is  economically  ruinous.  Moral  science 
jr.2e..  £y^<''^ppeals  only  to  an  enlightened  conscience,  and  cer- 
"^  •  tain  conduct  is  approved  because  it  is  right,  and  for 

^'w.i.:;.^!  no  other  reason.  Political  Economy  appeals  only 
ft  ^  to  an  enlightened  self-interest,  and  exchanges  are 
^  _       '^     made  because  they  are  mutually  advantageous,  and 


p^tr^ 


v*^<*. 


FIELD   OF   THE  SCIENCE.  47 

for  no  other  reason.     Each  of  the  two  sciences,  there-  c  Jf    Jl^ 
fore,  has  a  distinct  basis  and  sphere  of  its  own.    The. 
grounds  of  Economy  and  morals  are  independent  and 
incommensurable. 

Every  science,  however,  has  its  points  of  contact  ^L*^  c.< 
with  other  sciences ;  and  this  is  particularly  the  case/^i-i^  ^  ^^ 
with  Political  Economy  in  relation  to  moral  science, ^^^  z^Mr^  i 
and  is   the   reason    why   the   two   have   sometimes /U.fL^  ,cv 
been  confounded.    The  sound  conclusions  of  the  one/^-v-vX;^  t^ 
are  harmonious  with  the  sound  conclusions  of  the^^»>^^c^ 
o1her.     Both  work  together  for  the  good  of  men,  for  1i^\,^^m 
the  amelioration  of  their  condition.     Their  spheres, "'^^l^  V 
though  distinct,  nevertheless  touch  each  other.    Duty  '^^*^    . 
and  interest  lie  alongside.     The  ultimate  analysis^j^^/^^ 
of  property,  for  example,  will,  as  we  shall  see,  lead  ,j,"j32l,^^ 
the  inquirer  into  the  higher  region  of  moral  science. 
In  legislation  also,  the  question  is  frequently  at  the 
same  time  an  economical  and  a  moral  question.     Dr. 
Wayland  has  observed  that  "  almost  every  question 
of  the  one  science  may  be  argued  on  grounds  belong- 
ing to  the  other."     But  the  grounds  themselves,  it  is 
important  to  remark,  must  be  seen  to  be,  and  must 
be  kept,  distinct. 

In  the  next  place,  the  very  name  of  the  science  in- 
dicates that  it  is  a  political,  that  is,  a  social  science.  V^e^... 
It  relates  to  men  in  a  state  of  society,  and  not  to  ^a 
men  in  a  state  of  isolation.    The  hermit,  who  neither       ^      "^^^ 
buys  nor  sells,  who  neither  gives  nor  receives  any^"^^^*^?^*^/ 
thing  in  exchange,  is  not  amenable  to  the  laws  of  ^^^^^^^l' 
Political  Economy.     So  far  as  men  satisfy  their  own  ^i^  tLi^^ 
wants  by  their  own  efforts  without  exchange,  they  '^*^*''^  ^^^ 
stand  outside  the  pale  of  this  science.     Under  those  '^'^         **' 
circumstances  the  idea  of  value  could  neither  have  j^^j^  / 


^J<i^.iiJi-A8  ELEMENTS   OF   POLITICAL  ECONOMY. 

Ltf^)  ''f*^*  birth  nor  being,  and  of  course  there  would  be  no 

such  thing  as  a  science  of  value.     Robinson  Crusoe 

i-y^icr^s  rwsoi  ^^^Q  |-Q  jg^(j  ^  ygj.y  tolerable  life  u^on  his  desolate 

'  island  by  means  of  his  own  industry.     He  worked, 
but  then  he  worked  to  satisfy  his  own  wants  directly. 
He  did  everything  for  himself.     He  had  no  oppor- 
tunity to  buy  anything,  sell  anything,  exchange  any- 
thing.    The  whole  course  of  such  a  life  could  never 
have  developed  the  idea  of  value,  and  the  record  of 
;    ,,.'    '        the  whole  experience  of  such  a  solitary  individual 
.^_,       would  require  no  such  word  as  value.     If  God  had 
.^.-^        made  men  so  that  their  varied  wants  would  best  be 
^'^Ji-        J^6*  by  applying  their  own  efforts  to  satisfy  these 
wants  directly,  without  the  intervention  of  exchange, 
there  would  have  been,  there  could  have  been,  no 
such  science  as  the  one  to  which  attention  is  now  di- 
rected.    In  that  case,  men  would  live,  if  they  lived 
at  all,  in  perfect  isolation.    Every  man  would  satisfy 
his  own  desires  by  his  own  efforts.     There  would  be 
no  society,  and  no  exchange. 

But  it  is  evident  at  the  very  first  glance,  that  the 
Creator  has  not  made  men  thus.     Society  is  God's 
^  '  handiwork.     It  is   the    most   complicated    and   the 

i^'^'  ''  most  wonderful,  as  it  was  the  final,  work  of  his 
^J^/'^hands.  The  first  man,  as  he  stood  alone  in  Para- 
r-.^  .  r>r*^  disc,  was  indeed  a  wonderful  structure,  —  wonderful 
^-.^iVtic  in  his  body,  and  in  all  his  mental  and  spiritual  pow- 
o^^.^i'/M'  ers.  But  it  was  not  good  that  the  man  should  be 
■^^::/;^^''lp' 'alone.  Society  must  be  provided  for;  and  in  pro- 
3u  f^N  a.  viding  for  a  society  of  human  beings,  God  impressed 
t:4>^'U,  upon  that  organization,  as  upon  all  others,  its  own 
^^^r  -vi-Au^  V  proper  and  peculiar  laws.  These  laws  embrace  its 
tw^u-t^  ">  entire  organization,  in  its  lower,  as  well  as  in  its 


FIELD  OF  THE  SCIENCE.  49 

higher,  parts.     They  cover   the  phenomena  of  ex- 
change, just  as  they  cover  the  phenomena  of  morals ; 
and  no  intelligent  observer  can  watch  their  working, 
when  left  intact  and  free,  without  being  stimulated 
and   gladdened  by  the  beneficent  results  to  which 
they  lead.      If  the  footsteps  of  providential  intelli- 
gence be  found  anywhere  upon  this  earth,  if  proofs //Vt^y^^  ^L- 
oi  God's  goodness  be  anywhere  discernible,  they  are^^c^JIl . 
discernible,  and  are  found  in  the  fundamental  laws;^  ^^Ka^*^^*^ 
of  society.     Certainly,  if  every  man  could  satisfy  all  -^^~w£U. 
his  desires  as  well,  by  putting  forth  his  efforts  to  that^^^^J^^^j^ 
end  directly,  he  would  do  it.     He  would  grow  hiso§i.*-ic-w  « 
own  food,  make  his  own  clothes,  write  and  publish  hjLc*-c<^.-. 
his  own  newspaper,  be  his  own  doctor,  in  one  word, 
perform  all  needed  services  for  himself.     But  God 
has  so  OFJered  it  that  he  cannot  do  this.    He  cannot, 
in  a  state  of  isolation,  with  all  his  efforts,  procure  for 
himself  one  thousandth  part  of  the  comforts  which 
he  easily  procures  for  himself  by  less  efforts,  througn 
exchange.     Society  and  exchange  are,  under  God's 
ordination,  matters  of  necessity,  if  men  are  to  rise  in 
a  scale   of  comforts   perceptibly   above   the  brutes. 
And  the  reason  is  this.     There  are  obstacles,  in  all 
directions,  to  the  satisfaction  of  men's  desires      If 
the  desires  are  to  be  met,  these  obstacles  are  to  be 
surmounted.      But  if  one  man  undertakes  to  sur- 
mount any  considerable  number  of  these  obstacles, 
he  miserably  fails.     His  powers  are  not  adequate  to 
the  task ;  and  hence  we  say,  that  in  a  state  of  isola-  //»aX  ^^-x 
tion,  men's  w^ants  exceed  their  powers.     But,  if  he 
devote  himself  to  surmounting  one  class  of  obstacles,  ^^  ,  ^  ^ 
as,  for  instance,  those  in  the  way  of  procuring  suita- 
ble clothing,  his  powers  are  adequate  to  this,  he  soon 

4 


60  ELEMENTS   OF  POLITICAL  ECOMOMY. 

acquires  skill  in  it,  he  learns  to  avail  himself  of  th« 
gratuitous  help  of  Nature,  and  the  facilitating  pro- 
cesses of  art,  he  is  able  to  realize  large  products  along 
his  line,  and  is  now  in  position  to  offer  valuable  ser- 
vices to  society.  Meanwhile  other  men  have  been 
devoting  themselves  each  to  another  class  of  obsta- 
cles, have  concentrated  effort  and  skill  upon  them, 
have  succeeded  by  the  help  of  Nature  and  art  in  sur- 
mounting them,  and  now  offer  their  valuable  services 
to  society. 

Now,  then,  these  services  are  mutually  exchanged 
in  all  directions,  and  men  find,  as  it  is  God's  clear 
design  that  they  should  find,  that,  by  making  given 
efforts  along  one  line,  and  exchanging  them  for  cor- 
responding efforts  along  other  lines,  they  obtain  vast- 
ly greater  satisfactions  for  their  various  desires  than 
they  could  obtain  by  direct  effort.     Why  ?    Because 
there  is  now  a  vast  increase  of  useful  products  in 
existence.     Here  we  have  reached,  provisionally,  the 
^     ■  true  explanation  of  the  gains  of  exchange.     It  is  not 
i.  «Uzr»n^t**^so  much  that  by  exchange  men  get  better  and  cheaper 
A>^^iZ<f*^  «^  articles,  as  it  is  that  they  get  more  of  them.      By 
VWyt^-^'M^  the  division  of  employments,  which  is  only  possible 
under  a  system  of  exchange ;  by  the  fact  that,  under 
x44ij^  !       free  exchange,  men  avail  themselves  of  all  the  varied 
advantages  of  Nature  and  position ;  the  number  and 
variety  of  useful  products  created,  the  number  and 
variety  of  the  services  which  men  are  able  to  render 
to  each  other,  are  immeasurably  augmented.     More 
is  produced,  more  is  to  be  exchanged,  and  therefore 
there   are    more   satisfactions  of  all   men's   desires. 
Political  Economy,  therefore,  which  unfolds  the  rea- 
sons and  the  laws  of  exchange,  finds  its  only  field 


FIELD    OF   THE   SCIENCE.  51 

in  a  state  of  society.     It  is  truly  a  political,  that  is, 
a  social  science.  -^ 

In  determining  now  more  definitely  still  the  fieldi^^/^^iA/f  t/^ 
of  our  science,  we  will  look  at  some  of  the  leading 
definitions  of  it  which  have  been  given  by  different 
writers.     Mr.  Senior  defines  it  "the  science  whichScivroR 
treats  of  the  nature,  the  production,  and  the  distri- 
bution of  wealth."     Mr.  McCulloch  regards  it  ^^theM^Ci>LLoc 
science  of  the  laws  which  regulate  the  production  dtf 
those  material   products  which    have  exchangeable 
value,    and   which    are   either   necessary,   useful,  or 
agreeable  to   man."     Archbishop  Whately  gives  itVVHATE/r 
the   name   of   "  catalactics,   or  the    science   of  ex- 
changes."      Among    several   equivalent   definitions 
which  he  is  at  pains  to  give,  Mr.  Mill  places  first, —  Mai. 
*  the  science  which  treats  of  the   production    and 
distribution  of  wealth,  so  far  as  they  depend  upon 
the  laws  of  human  nature."     The   French  writers 
give  definitions  somewhat  broader.     M.  Storch  says^TaaCH 
it  "  is  the  science  of  the  natural  laws  which  deter- 
mine the  prosperity  of  nations,  that  is  to  say,  their 
wealth  and  civilization."     M.  Sismondi  regards  "  as3i5N;\0Ni>» 
the  object  of  political  economy  the  physical  welfare 
of  man,  so  far  as  it  can  be  the  work  of  government." 
And  M.  Say  defines  it  as  "  the  economy  of  society;  '- 
a  science  combining  the  results  of  our  observations 
on  the  nature  and  functions  of  the  different  parts  of 
the  social  body."     Mr.  Carey  defines  it  "the  science Car^v 
of  the  laws  which  govern  man  in  his  efforts  to  secure 
for  himself  the  highest  individuality  and  the  greatest 
power  of   association  with    his  fellow-men."      And 
lastly,  Mr.  Macleod  offers  the  definition,  —  "the  sci-  MaCLEC 
ence  which  treats  of  the  laws  which  govern  the  rela- 
tions of  exchangeable  quantities." 


52  ELEMENTS  OF  POLITICAL  ECONOMY. 

It  will  be  noticed  that  in  several  of  the  preceding 
definitions  the  term  wealth  is  introduced  as  a  part 
of  the  definition.     This  word  wealth   has  been  the 
bane  of  Political  Economy.     It  is  the  bog  whence 
most  of  the  mists  have  arisen  which  have  beclouded 
the  whole  subject.     From  its  indefiniteness,  and  the 
variety  of  associations   it  carries  along  with  it  in 
different  minds,  it  is  totally  unfit  for  any  scientific 
purpose  whatever.     It  is  itself  almost  impossible  to 
be   defined,  and  consequently  can  serve  no  useful 
purpose  in  a  definition  of  anything  else.    It  has  been 
much  debated,  for  example,  among  political  econo- 
mists, whether  the  term  wealth   includes  anything 
^  f)^4v^         more  than  material  products,  such  as  houses,  lands, 
tA>xat        metals,  tools,  food ;  or  whether  the  skill  of  artisans 
^^^  *        and  the  services  of  professional  men  are  also  to  be 
^     .  reckoned  as  wealth.     Some  include  under  the  term 

'♦***^^f  %  only  material  products ;  others,  as  Mr.  Mill,  widen 
4,</l^v  ,^  the  signification  so  as  to  take  in  those  immaterial 
services  which  result  in  an  increase  of  material  prod- 
ucts; while  others  still,  with  evident  violence  to  the 
current  meaning  of  the  word,  include  under  it  all 
things,  whether  material  or  immaterial,  for  which 
something  may  be  obtained  in  exchange.  Thus  the 
meaning  of  the  word  wealth  has  never  yet  been  set- 
tled ;  and  if  Political  Economy  must  wait  until  that 
work  be  done  as  a  preliminary,  the  science  will  never 
be  satisfactorily  constructed.  It  is  simply  impossible, 
on  such  an  indefinite  word  as  this  at  the  foundation, 
to  build  up  a  complete  science  of  Political  Economy. 
Moreover  the  word  wealth  includes  the  two  distinct 
wt  a.vS>  ideas  of  value  and  utility,  —  ideas  which  must  be 
j^  kept  perfectly  distinct,  or  else  there  is  no  sound  think- 


FIELD  OF  THE  SCIENCE.  53 

ing  and  no  sound  conclusions  within  this  field.    Men 
may  think,  and  talk,  and  write,  and  dispute  to  weari- 
ness, but  until  they  come  to  use  words  with  definite- 
ness,  and  mean  the  same  thing  by  the  same  word» 
they  reach  comparatively  few  results,  and  make  but 
little  progress.     And  it  is  just  at  this  point  that  we/,^Lc^^^.>vc 
find  the  first  grand  reason  of  the  slow  advance  hith-^/,^^  ^7^, 
erto  made  by  this  science.     It  undertook  to  use  ^c^fH^^i^ 
word  for  scientific   purposes   which  no  amount  of  ^ 
manipulation  and  explanation  could  make  suitable 
for  that  service.    Happily  there  is  no  need  to  use  this 
word.     In  emancipating  itself  from  the  word  wealth 
as  a  technical  term,  Political  Economy  has  dropped 
a  clog,  and  its  movements  are  now  relatively  free. 

Of  the  other  definitions  quoted,  against  which  theSty^u  ^Mm 
objection  just  considered  does  not  lie,  some  embrace  i'^^>^#P  a 
too  little,  and  others  embrace  too  much.     The  only»£>n.^^^*^ 
one  which  seems  to  the  present  writer  to  be  exactly 
right,  is  the  definition  given  by  Archbishop  Whately,Vl/K<»^6^/ 
namely,  the  science  of  exchanges.     This  definition,'i(^  Sslc,. 
or  its  precise  equivalent,  the  science  of  value,  gives  3.  \    ., 
perfectly  definite  field  to  Political  Economy.     Wher-         /     .  ^ 
ever  value  goes  this  science  goes,  and  where  value  ^       -^  -  ^ 
stops  this  science  stops.     Political  Economy  is  the^^^^  r^^*"' 
science  of  value,  and  of  nothing  else.     To  determine 
with  distinctness  what  value  is,  to  separate  it  from 
some  things  which  have  often  been  confounded  with 
it,  and  thus  to  lay  a  foundation  for  the  science  at 
once  satisfactory  and  complete,  will  be  the  work  of 
the  next  chapter.     But  it  is  in  order  at  this  point  to 
call  attention  to  the  second  grand  reason  of  the  slow  <?,<*.<  ^-a^*^ 
advance  hitherto  made  in  this  field  of  inquiry.    Value^^-^*^^**^"^ 
is  a  relative  word.     It  is  usually  defined  as  purchas-  Ytl^^  a  .^^ 


54  ELEMENTS   Of  POLITICAL  ECONOMY. 

ing-power,  that  is  to  say,  the  value  of  anything  is 
its  power  of  purchasing  other  things.  It  is  not  an 
r '  independent  quality  of  one  thing,  as  hardness  is  a 
quality  of  a  stone,  but  it  is  a  quality  of  one  thing 
as  estimated  in  a  corresponding  quality  of  something 
else.  It  is  not  a  quality,  in  and  of  itself,  of  gold,  but 
a  relation  which  gold  holds  to  other  things  which 
gold  will  buy.  The  notion  of  value  is  not  conceiva- 
JiuuAU  A/^^^  except  by  a  comparison  of  two  things,  and  what 
'^^  is  more,  of  two  things  mutually  exchanged.  Politi- 
cal Economy  therefore  is  based  upon  a  relative  idea, 
and  has  to  do  from  beginning  to  end  with  a  relation. 
Now  in  this  there  is  an  inherent  difficulty,  and  a 
difficulty  too  which  can  never  be  obviated.  It  lies 
in  the  very  nature  of  the  subject.  Men  much  more 
readily  apprehend  an  absolute  idea  than  a  relative 
one.  They  more  easily  follow  a  discussion  touching 
the  independent  attributes  of  single  objects,  such  as 
length,  breadth,  thickness,  and  many  others,  than  a 
discussion  touching  value,  which  is  not  an  attribute 
of  any  one  thing,  but  a  relation  subsisting  between 
two  things.  I  am  not  aware  that  this  difficulty  has 
ever  been  remarked  on  by  any  writer,  but  I  am  at 
the  same  time  very  sure  that  it  constitutes  the  prin- 
cipal difficulty  in  this  class  of  inquiries,  and  has  been 
the  main  reason  of  the  tardy  progress  hitherto  made 
in  them. 

In  thus  circumscribing  the  field  of  Political  Econ- 
omy, I  am  not  disposed  to  deny  the  possibility  of  a 
b-r-^^i^.^     more  comprehensive    science  than    this   is    as   thus 
''  '  '  defined,  or   of  even   a   number  of  sciences,   as  yet 

undeveloped   and    unnamed,    whose    inquiry    might 
be,  under  what  intellectual  and  physical  conditions 


FIELD   OF   THE  SCIENCE.  55 

men,  whether  as  individuals  or  as  aggregated  in  so- 
ciety, might  obtain  the  greatest  amount  of  physical 
comforts,  or  the  highest  degree  of  individuality,  or 
the  widest  control  over  the  powers  of  nature.  Sev- 
eral of  the  definitions  cited  above  imply  more  general 
inquiries  than  are  relevant  in  a  proper  science  of  ex- 
changes ;  and  a  good  deal  of  the  discussion  in  almost 
all  books  that  professedly  treat  of  Political  Economy 
is  drawn  from  territory  that  lies  outside  the  strict 
limits  of  that  science.  Whatever  others  have  done, 
or  may  hereafter  undertake  to  do,  I  propose  solely  to 
investigate  the  motives  and  the  conditions  that  gov- 
ern men  in  their  exchanges.  Such  investigations 
have  a  definite  field  of  view;  and  if  properly  pur- 
sued, will  lead  to  a  statement  of  those  laws  that 
constitute  the  Scienceof  Value.  To  these,  then,  we 
next  proceed  ;  and  first  of  all,  to  an  analysis  of  Value 
Itself. 


50  ELEMENTS  OF  POLITICAL  ECONOMY. 

CHAPTER  IIL 

ON  VALUE. 

If  1  take  up  a  new  lead-pencil  from  ray  table,  for 
the  purpose  of  examining  all  its  qualities,  I  shall 
immediately  perceive  those  which  are  visible  and 
tangible.  The  pencil  has  length,  a  cylindrical  form, 
a  black  color,  is  hard  to  the  touch,  is  composed  of 
wood  and  plumbago  in  certain  relations  to  each 
other,  and  has  the  quality,  wjien  sharpened  at  the 
end,  of  making  black  marks  upon  white  paper. 
These  qualities,  and  such  as  these,  may  be  learned 
by  a  study  of  the  pencil  itself.  But  can  I  learn,  by 
^^  fa  study  of  the  pencil  itself,  the  value  of  the  pencil? 
^  Is  value  a  quality  ?  By  any  examination  of  its  me- 
chanical, or  by  any  analysis  of  its  chemical  proper- 
ties, can  I  detect  how  much  the  pencil  is  worth? 
No.  The  questioning  of  the  senses,  however  minute, 
the  test  of  the  laboratory,  however  delicate,  applied 
to  the  pencil  alone  can  never  determine  how  much 
it  is  worth.  These  methods  will  discover  the  quali- 
ties that  belong  to  the  pencil  as  such,  but  I  must 
take  another  method  altogether  to  determine  its 
value. 

Will  the  origin  of  the  word  Value  help  in  finding 
a  method  by  which  I  may  discover  the  value  of  the 
pencil  ?  The  word  is  derived  from  the  Latin  verb 
VALERE,,  to  pass  for,  to  be  worth.     There  is  a  hint  of 


ON  VALUE.  57 

a  comparison  in  the  original  meaning  of  the  term  it- 
self. Will  the  current  use  of  language  assist  me 
any  further  in  finding  out  the  way  to  learn  the  value 
of  my  pencil  ?  In  current  language,  when  the  value 
of  anything  is  asked,  the  answer  always  comes  in 
the  terms  of  something  else.  We  ask,  How  much  is 
it  worth  ?     The  answer  is,  so  many  cents  or  dollars.  ^      , 

The  cents  or  dollars  are  very  different  things  from  -^---r^ 

the  things  whose  value  we  inquire  after;,  and  thus^^' 
we  see  again  more  clearly  that  value  implies  a  com- 
parison of  two  distinct  things ;  and,  if  so,  of-  course 
it  is  useless  to  try  to  ascertain  its  value  by  a  study 
of  the  pencil  alone.  But  what  kind  of  a  comparison 
between  two  things  is  needful,  in  order  to  ascertain  ^^ 

the  value   of  either?      There  is   no  use   in   laying  ^ 

down  a  certain  number  of  cents  by  the  side  of  the     .  . 
pencil  for  the  purpose  of  fixing  its  value,  as  we  lay  \\}^V-'/^^^i 
down  a  carpenter's  square  by  the  side  of  a  stick  to"*  (Bot^ 
ascertain  its  length  ;  because  the  cents  have  no  com- 
mon physical  quality  with  the  pencil,  as  the  square 
and  stick  have  in  common  the  physical  quality  of 
length.     A  simple  comparison  determines  the  rela- 
tive length  of  the  square  and  the  stick,  and  it  makes 
no  difference  in  the  result  whose  the  square  is  or 
whose  the  stick  is.     A  borrowed  square  is  just  as 
good  to  determine  length  as  any  other,  since  that 
circumstance  does  not  affect  the  terms  of  the  com- 
parison :   also,  one  man  is  competent  to  make  the 
comparison,   and  it  is  not  needful  that  he  be  the 
owner  of  either  of  the  things  compared. 

But  is  a  man  who  does  not  own  a  thing  compe-;^^^  ^aX<.. 
tent  to  fix  its  value?  •  And  is  a  man  who  does  own.,.'y^cS  l^  <k. 
a  thing  competent  to  fix  its  value  by  himself  alone  ? 


58  ELEMENTS  OF  POLITICAL  ECONOMY. 

The  true  answer  to  these  questions  brings  out  two 
peculiarities  of  that  comparison  by  which  value  must 
always  be  ascertained.  Besides  the  two  things  com- 
pared, there  must  be  always  two  persons  comparing 
and  each  of  these  two  persons  must  be  virtually  the 
owner  of  one  of  the  things  compared.  Because  I 
think  my  pencil  is  worth  fifteen  cents,  is  it  there- 
fore worth  fifteen  cents  ?  Somebody  else  must  think 
so  too  before  that  fact  can  be  announced.  Also,  the 
comparison  that  two  thieves  make  between  two 
pieces  of  stolen  goods  would  not  go  far  in  public 
estimation  towards  fixing  the  value  of  either  piece 
of  goods.  Somebody,  then,  who  owns  the  cents, 
must  make  a  comparison  with  somebody  else  who 
owns  the  pencil,  or  the  value  of  the  latter  is  not  likely 
to  be  truly  ascertained. 

But  besides  such  a  comparison,  essential  as  this 
is  as  towards-  the  end  in  view,  another  step  is  need- 
ful before  I  can  announce  the  value  of  the  pencil. 
Not  simply  a  comparison  but  an  action  also  is  neces* 
sary.  I  think  it  is  worth  fifteen  cents ;  an  owner  of 
cents,  with  whom  the  comparison  is  made,  thinks  so 
too ;  is  it  therefore  worth  fifteen  *cents  ?  That  is 
more  than  I  can  tell  yet.  I  say  to  him,  Will  you 
take  it  and  give  me  fifteen  cents  for  it  ?  He  replies, 
I  think  it  is  worth  it,  but  I  am  not  ready  to  give  that 
sum  for  it  this  morning.  The  value  of  the  pencil  is 
not  yet  determined.  In  order  to  that  there  must  be 
an  actual  exchange  of  the  pencil  for  the  cents. 
There  must  be  two  things,  two  persons,  a  compari- 
son, an  actual  exchange  by  which  each  person  shall 
receive  in  fact  or  in  ownership  that  previously  held 
by  the  other,  —  each  rendering  something /or  the  sake 


ON  VALUE.  59 

of  the  thing  received,  before  the  determinate  value 
of  anything  is  possible  to  be  stated.  There  may  be 
expected  value,  estimated  value,  but  actual  value  '''^*^  \r<^^^^ 
there  is  none,  until  a  real  exchange  has  settled  how^^'i^  t^^-*^ 
much  the  value  is.  The  value  of  anything  is  some- 
thing else  already  exchanged  for  it.  Value  is  not 
simply  a  relation  subsisting  between  two  things,  but 
an  actual  fact  established  in  connection  with  those 
two  things.  Quid  pro  quo  is  the  universal  formula 
of  value.  The  pencil  is  not  worth  fifteen  cents,  be- 
cause I  have  not  yet  succeeded  in  obtaining  that 
sum  in  exchange  for  it. 

Not  dealing  in  pencils,  nor  liking  to  chaffer,  and 
finding  it  a  little  troublesome  to  discover  what  the  _ 

value  of  the  pencil  is,  I  ask  myself  what  its  value  ^^f*'*^'-*'^ 
was  when  I  purchased  it?    That  is  an  easy  question. 
Two  days  ago  I  paid  for  it  the  sum  of  ten  cents, 
United  States  currency.     It  was  the  storekeeper  and 
I.    I  owned  the  cents  and  he  owned  the  pencil.     We 
compared  these  two  pieces  of  property  together,  and    . 
agreed  to  change  ownership  in  them.     I  gave  him^/'^'^''^ 
the  cents  for  the  sake  of  the  pencil,  and  he  gave  me^"^'*^'^/ 
the  pencil  for  the  sake  of  the  cents.     How  much  is^"^  '^' 

my  pencil  worth  ?     I  do  not  know.    How  much  was"^   "^T' 
it  worth  two  days  ago  ?     Ten  cents  exactly,  '^    / 

If  this  preliminary  view  be  just,  it  is  clear  that 
value  is  not  in  any  true  sense  a  quality  residing  in 
any  one  thing,  but  is  a  relation  of  mutual  purchase    , 
established  between  two  things.     Nevertheless,  it  is 
often  convenient  to  regard  value  as  a  quality  inher- 
ing in  a  commodity  or  service.     The  convenience  of  (JijMaZ  S^^' 
such  expressions  as,  "the  pencil  has  value,"  "gold^'   "  '^"' 
has  value,"  is  so  great,  that  science  will  not  consent 


r^   ^ 


60  ELEMENTS  OF  POLITICAL  ECONOMY. 

to  forego  the  advantage  of  using  them,  even  though 
they  are  not  scientifically  accurate.  Science  justly 
prefers  to  make  her  language  intelligible  and  popular, 
even  at  the  hazard  of  perpetuating  a  misapprehen- 
sion. On  such  subjects  as  these,  she  is  compelled  in 
part  to  use  language  as  she  finds  it;  but  she  is  cul- 
pable if  she  does  not  fix  at  the  outset  with  absolute 
distinctness  the  meaning  of  her  terms,  however  pop- 
ularly current,  and  then  use  the  terms,  always  in  the 
same  sense,  never  confounding  a  term  with  other 
terms  of  a  similar  but  not  identical  significance.  In 
allowing,  therefore,  such  expressions  as,  "  gold  has 
value,"  I  do  not  use  the  term  in  any  other  than  its 
defined  sense,  I  do  not  imply  that  value  is  a  simple 
quality,  but  I  employ  shortened  forms  of  expression 
long  consecrated  by  usage,  and  avoid  circumlocu- 
tions sure  to  become  tedious.  So  also,  by  using 
language  that  may  imply  that  value  exists  before  it 
,  ,  is  realized  in  an  actual  exchange,  I  do  not  admit 
.  ^  ^,  that  value  exists  independently  of  an  exchange ;  men 
employ  foresight,  put  forth  exertion,  practice  absti- 
nence, in  reference  to  a  future  realization  of  value  : 
it  is  proper,  at  any  rate  it  is  necessary,  to  speak  of 
them  as  already  employed  upon  value ^  and  of  value 
itself  as  a  purchasing-j»70i^er  residing  in  this  or  that. 
A  concession  to  the  exigencies  of  language  is  not  a 
departure  from  the  exactness  of  science.  It  is  not, 
accordingly,  true,  speaking  strictly,  that  value  is  a 
quality  of  gold  in  the  sense  in  which  weight  is  a 
quality  of  gold,  because  circumstances  are  easily  con- 
ceivable, and  have  often  occurred,  under  which  gold 
would  have  no  value  at  all.  To  the  crew  of  a  boat 
abandoned  at  sea,  among  whom  the  last  biscuit  had 


ON  VALUE.  61 

been  rationed  out,  a  bag  of  gold  belonging  to  one  of 
the  men  would  not  purchase  a  biscuit  belonging  to 
another.  The  inherent  qualities  of  the  gold  are 
preseat.  It  is  still  hard,  and  yellow,  and  heavy. 
But  valuable  it  is  not.  It  will  not  purchase  any- 
thing. Value,  therefore,  is  not  an  inherent  and 
invariable  attribute,  but  is  the  relative  power  which 
one  thing  has  of  purchasing  other  things.  This 
power  in  any  one  thing  will  vary  according  to  time  9y; 
and  place  and  circumstances.  It  may  cease  alto- 
gether, as  in  the  case  just  supposed,  or  it  may  rise 
under  other  circumstances  to  a  very  high  degree ; 
but  whenever  it  exists,  it  exists  with  reference  to 
some  other  thing,  which  either  is,  or  is  supposed  to 
be,  exchanged  with  it.  Ten  cents  had  the  power  of 
purchasing  my  pencil,  and  my  pencil  had  the  power 
of  purchasing  ten  cents.  In  this  transaction  the  idea 
of  value  is  developed.  A  similar  transaction  first 
introduced  that  idea  into  the  world,  and  the  endless 
succession  and  variety  of  such  transactions  have  kept 
the  idea  in  the  world,  and  will  keep  it  here  till  the 
end  of  time.  Value,  then,  speaking  strictly,  is  not 
an  independent  quality  of  the  pencil,  any  more  than 
it  is  an  independent  quality  of  the  cents.  Both  are 
necessary  in  order  that  the  value  of  either  may  be 
conceived  of.  The  value  of  the  cents  is  estimated, 
is  measured  by  the  pencil ;  and  the  value  of  the 
pencil  is  estimated,  is  measured  by  the  cents.  In 
one  word,  value  is  always  relative,  and  never  abso- 
lute. To  say  that  anything  has  an  absolute  value 
is  a  simple  contradiction  in  terms.  w 

But  why  was  I  desirous  to  part  with  good  United 
States   money  for   the   sake  of  the  pencil,  and  the 


62  ELEMENTS  OF  POLITICAL  ECONOMY. 

storekeeper    to    part  with    a    good    pencil    for    the 
vW  C--  sake  of  the  money?     The  answer  to  this  question 
4>-wsju;o^  will  ground  the  science  of  value  on  the  unchanging 
-fk^  ua.a:  principles  of  human  nature.     I  experienced  eT  want 
^  "^^      which  the  pencil  was  adapted  to  satisfy.     He  expe- 
^.r  if/,  rienced  a  want  which  the  money  was  adapted  to 
.    satisfy.     But  between  my  want  and  its  satisfaction, 
both  of  which  were  personal  to  me,  there  lay  an  efFortj 
to  be  made  either  by  myself  or  by  somebody  else  in 
.  t\  my  behalf.     So,  between  his  want  and  its  satisfac- 

.J/Uu^i^  tion,  both  of  which  were  personal  to  him,  there  lay 
^~t^  an  effort,  to  be  made  either  by  himself  or  by  some- 
>^^  -  body  else  in  his  behalf.     If  I  had  chosen  to  do  so,  I 

might  have  made  the  direct  effort  necessary  in  order 
to  supply  myself  with  a  pencil.     I  might  have  made 
the  pencil  for  myself.     It  would  indeed  have  been  a 
long   and   tedious   process,  would   have  required  a 
learning  of  two  or  three  trades,  a  journey  to  some 
plumbago-bed,  the  working  and  preparation  of  the 
^'.v^cu:.  s  mineral,   and  various   other  subordinate    processes ; 
,;xuv.  .      still,  in  the  course  of  half  a  life-time  it  might  per- 
haps have  been  done,  and  I  might  by  direct  efforts 
have  supplied  myself  with  a  pencil  as  good  as  that 
which  I  purchased.     So,  too,  the  storekeeper,  unless 
the  laws  had  prevented  it,  might  have  procured  for 
himself  by  direct  efforts  the   metal   cents  which   I 
gave  him  in   exchange  for  the  pencil.     He   might 
have  dug  the  ores  for  himself,  refined,  alloyed,  and 
►JU,  vilrw\, minted  them.     Had  we  chosen  respectively  to  take 
5>Ult..i  *-  this  course,  and  each  been  able  to  satisfy  his  own 
li-;?^^-..—  particular  desire  by  his  own  unassisted  efforts,  the 
,y^  ^  processes  in  either  case  would  have  had  no  relation 
_^j^  ^    to    Political   Economy.     There  would   be   in   each 


,Cm^U 


ON  VALUE.  63 

case  a  want,  an  effort,  a  satisfaction,  but  there  would 
be  no  exchange.  As  a  matter  of  fact,  however,  we 
exchanged  the  efforts  which  lay  between  our  respec- 
tive desires  and  their  respective  satisfactions.  I  de- 
sired a  pencil,  he  relieved  me  of  the  effort  necessary 
to  make  it,  and  I  experienced  the  satisfaction.  He 
desired  the  cents,  I  relieved  him  of  the  effort  neces- 
sary to  procure  them,  and  he  again  experienced  the 
satisfaction.  We  each  experienced  our  own  desires, 
and  our  own  satisfactions,  but  we  exchanged  efforts. 
Precisely  in  this  exchange  of  efforts  arose  the  phe- 
nomenon of  value.  I  parted  with  my  cents,  which 
had  cost  me  an  effort,  in  order  to  satisfy  my  desire 
for  a  pencil,  because  my  effort,  represented  in  the 
cents,  was  less  than  the  effort  it  would  cost  me  to 
create  the  pencil.  The  shopkeeper  parted  with  the 
pencil,  which  had  cost  him  an  effort,  in  order  to  sat- 
isfy his  desire  for  the  cents,  because  his  effort,  repre- 
sented in  the  pencil,  was  less  than  the  effort  which  ^  j,  ^^  • 
it  would  otherwise  cost  him  to  procure  the  cents.  '^^^ 
We  exchanged  efforts,  therefore,  for  our  mutual  ^fp 
advantage.  V^'^«^>r>^*^ 

The  principles  of  human  nature,  then,  on  whichd|(w**-^  •>«-* 
the  laws  of  value  are  grounded,  are  these :  Men  fi^  i-c^^c,  - 
have  desires,  are  capable  of  making  efforts  to  meet-/*^.^^  .-v-. 
these  desires,  and   experience  a   satisfaction   when  / 

the  desires  are  met.     Th«^.se  three  are  indisputable 
and  universal  facts.     But  while  the  desire  and  the  ^^^u-v-c^  ^ 
satisfaction  are  strictly  personal  to  one  man,  that  is 
to  say,  belong  to  him  and  cannot  be  communicated 
to  another,  it  is  not  so  with  efforts.     Efforts  are  ex-  ^^""^^  -^^^ 
changeable.     You  have  a  desire,  I  make  the  effort  '^^•^-c 
to  meet  it,  and  you  again  experience  the  satisfaction. 


64  ELEMENTS  OF  POLITICAL  ECONOMY. 

On  the  other  hand,  I  have  a  desire,  you  make  the 
effort  to  meet  it,  and  I  again  have  the  satisfaction. 
We  exchange  efforts,  but  experience  our  own  satis- 
factions.     Desires,   efforts,   satisfactions,  constitute 
the  one  circle  of  Political  Economy,  and  value  arises 
.^,  ^  _     in  every  case  from  a  comparison  of  two  correspond- 
ing efforts.     Efforts  are  naturally  irksome.     Every- 
body wishes  to  realize    as  large  a   satisfaction   as 
possible   from  a  given    effort.     If,  by  making   that 
Q    effort  for  another,  a  larger  satisfaction  will  be  real- 
L^K^  .    j^g^  ^j^^^  l^y  expending  it  directly  for  one's  self,  there 
(^  ^-^ft^^/fc^.is  an  immediate  and  pressing  motive  to  make  the 
)Jmi^t  effort  for  another,  and  to  reach  the  satisfaction,  not 
'    ^^      directly,  but  indirectly,  that  is,  by  exchange.     A  pre- 
cisely similar  motive  actuates  that  other  person.     If 
his  given  effort  will  realize  more  for  himself  by  be- 
ing put  forth  for  the  first  man,  and  by  accepting  the 
first  man's  effort  in  return,  he  too  will  be  anxious  to 
exchange  efforts  with  the  first.     There  is  a  mutual 
advantage  in  thus  exchanging.     A  given  effort  real- 
izes better  satisfactions  for  each  of  the  parties,  and 
the  reason  for  exchanges  is  thus  seen  to  spring  from 
the  most  active  and  invariable  principles  of  human 
nature. 

The  exchange  of  the  cents  for  the  pencil,  and  the 
M  fv,  ^^t^i, pencil  for  the  cents,  is  a  simple  case  of  value,  but  it 
^kvw^L.vis  not  the  simplest.  In  this  case  there  is  an  ex- 
change of  one  commodity  for  another  commodity, 
the  idea  of  value  is  instantly  developed,  and  we  say 
that  the  pencil  is  worth  ten  cents,  or,  what  is  exactly 
equivalent,  ten  cents  are  worth  the  pencil.  There 
arc  two  things  in  every  exchange,  —  that  which  ia 
parted  with  and  that  which  is  received.    Attention 


ON  VALUE.  Q5 

should  be  constantly  directed  to  both.  Many  errors 
in  science,  and  numberless  mistakes  in  legislation, 
have  arisen  from  not  attending  to  this  circumstance, 
as  if  it  were  the  glory  of  trade  to  sell  rather  than  to 
buy,  whereas  it  is  not  possible  to  sell  without  buy-^^.  yl^  i £«^ 
ing,  because  the  pay  must  be  taken  for  what  is  soW.^jjju^  c^^^ 
In  every  exchange,  therefore,  of  commodity  for  com- 
modity, the  value  of  each  is  expressed  in  the  other, 
and  the  relation  between  the  two  purchasing-powers 
is  adjusted.  This  is  the  common  case.  The  trade 
of  all  past  ages,  and  the  present  commerce  of  five 
continents,  presents  us,  in  principle,  with  nothing 
different  from  this.  The  commerce  of  the  world  is 
substantially  barter,  that  is,  the  exchange  of  com- 
modities for  commodities;  and,  though  many  pur-  ^  >t-««'^^< 
chases  and  sales  may  intervene,  and  money  may^itfu,,^»J 
play  its  part  in  facilitating  the  exchange,  and  many 
forms  of  credit  may  come  in,  before  the  transaction 
is  finally  closed,  these  do  not  alter  in  the  slightest 
particular  either  the  notion  of  value  or  its  laws. 
Each  repeated  purchase  and  sale  presents  us  over 
and  over  again  with  the  same  phenomenon,  namely, 
the  equalization  through  exchange  of  two  purchas- 
ing-powers. This  is  value,  and  is  the  sole  subject  of 
our  science. 

The  simplest  case  of  value,  however,  will  throw 
light  upon  the  more  complex  ones,  and  will  be  found 
to  include  them.     Two  farmers,  who  are  neighbors, 
find,  on  talking  over  their  respective  crops,  that  one 
has  more  hoeing   and   less   haying   this  year  than  ^ 
usual,  and  the  other  less  hoeing  and  more  haying,  v.f^'^^'*']^_ 
A.  says   to  B,    "Come   over  and  help   me  hoe  in    '^*  *^^*^ ' 
June,  and  I  will  go  over  and  help  you  hay  in  July."  A-^m:,.*^^/  •*  ' 
6  ^--^  ■ 


6Q  ELEMENTS  OF  POLITICAL  ECONOMY. 

B  agrees.  It  is  a  mutual  advantage.  And  so,  to 
use  the  old  expression,  which  is  better  here  than 
any  scientific  terms  could  be,  they  change  works.  B 
does  a  service  for  A,  and  A  does  a  service  for  B. 
The  two  services  balance  each  other.  They  are 
mutually  exchanged  one  for  the  other;  and  in  the 
very  proposal  thus  to  exchange  them  the  notion  of 
value  is  conceived,  and  in  the  exchange  itself  value 
is  both  produced  and  measured.  B's  help  in  hoeing 
is  worth  A's  help  in  haying. 

This  exchange  of  one  service  for  another  service 
presents  the  simplest  case  of  value ;  and  I  now  pro- 
ceed to  show  that  it  essentially  includes  all  other 
cases.  J£  it  can  be  shown  that  value  is  always  and 
everywhere  the  same  thing,  that  it  is  always  and 
everywhere  the  relation  of  mutual  purchase  es- 
tablished BETWEEN  TWO  SERVICES  BY  THEIR  EX- 
CHANGE, Political  Economy  will  be  seen  to  possess 
one  grand  characteristic  of  the  great  sciences,  namely, 
simplicity.  This  can  be  shown.  There  are  only  six 
cases  of  value  conceivable,  because  there  are  only 
three  kinds  of  things  that  are  ever  economically  ex 
changed.  These  latter  are,  1st.  Material  Commodi- 
ties, like  the  pencil ;  2d.  Immaterial  Services,  like 
those  of  the  teacher ;  3d.  Forms  of  Incorporeal  Prop- 
erty, like  a  United  States  bond.  We  may  have 
then,  first,  an  exchange  of  commodity  for  com  mod 
ity,  as  the  pencil  for  the  cents ;  second,  of  commod- 
ity for  service,  as  five  dollars  for  the  advice  of  a 
lawyer;  third,  of  commodity  for  some  form  of  incor- 
poreal property,  as  a  Waltham  watch  for  a  copyright; 
fourth,^  of  service  for  service,  as  in  the  case  of  the 
two  farmers  just  mentioned ;  fifth,  of  service  for  an 


ON  VALUE.  67 

incorporeal,  as  a  year's  work  for  a  five  hundred  dol- 
lar bond;    and   sixth,  an   incorporeal  for  an  incor- 
poreal,   as    a   bond    for   so    many   railroad    shares.^ 
What  is  mutually  transferred  in  all  these  cases  is  the  . 
ownership  or  property  in  something.     Material  P>*o^:LLri_f^  ^ 
ucts    may  or  may  not    be   passed  over  to  the  pur-^"**^ 
chaser  at  the  time  of  the  sale,  but  the  ownership  goesj:^^^^^^^^^^  ^^ 
over  to  him  in  all  cases.     Personal  services,  unlike/e,^.^ , 
material  products,  are  not  commonly   resalable   ^Y  Pj^^^^^^^ji  ^j^^ 
the   purchaser;    sometimes    they  are,  as  when    one^^^^^,,^^,^^  ,^ 
hires  out  for  a  time  his  own  hired  man.     Most  spe- 
cies of  incorporeal  property  are  transferable  at  will,  ^t^f ^»M^i 
as  bank  checks,  patent-rights,  and  promissory  notes.  *'^^***^^ 
But  this  transfer  of  ownership,  a  feature  in  all  cases^^^^/  .^ 
of  value,  though  less  obviously  so  when  simple  ser- 
vices are  rendered,  does  not  present  the  best  aspect 
for   the   complete    understanding   of   value.       That 
aspect  is  presented  through  the  term  services. 

It  is  mutual  services,  as  well  as  mutual  ownership,  ^iwlv^^  5.^*- 
that  are  exchanged  in  these  six  cases ;   and  the  word 
services  carries  us  deeper  into  the  central  phenomena 
of  value.     Thus  the  client,  with  five  dollars  in  his  y 
pocket,  is  just  as  much  in  position  to  do  the  lawyer^^^^^^^ 
a  service,  as  the  lawyer  is  in  position  to  do  him  a 
service.    The  counsel  is  serviceable  to  the  client,  and  ,,  -_ 
the  dollars  are  serviceable  to  the  lawyer,  and  so  they 
exchange.     And  just  so  when  commodities  are  ^x- J^^^^*^^  y^, 
changed  with  each   other.      The   hatter  serves  you 
with  a  hat,  and  the  shoemaker  with  a  pair  of  boots, 
and  you  serve  them  with  six  dollars  each;  or  if  the  , ^ 
hatter  be  in  want  of  boots,  and  the  shoemaker  of  a 
hat,  they  serve  each  other  with  their  respective  prod- 

1  Compare  Macleod's  Banking,  page  9. 


t^^^      i/VjO 


68  ELEMENTS  OF  POLITICAL   ECONOMY. 

ucts.      In    every  case    of  value,   therefore,  without 
exception,  what  is  really  exchanged,  whether  a  com- 
modity intervene  or  not,  are  mutual  services;    and 
b  vivLI  k^r    value  is  then  produced,  and  only  then,  when  two  per- 
M^  <XM*>i      ^^^^  ^^^  ^^  position  to  render  each  other  a  service ; 
e^^i.^^iiw   and   the  respective  services  being  rendered,  that  is 
exchanged,  and  the  balance  being  struck,  we  have 
the  value  of  one  expressed  in  the  other. 

Do  I,  then,  obliterate  the  old  distinction  between 
*-*^^\II  services  and  commodities?  Yes,  I  do,  as  far  as 
y}iA  ks^vj-  ^^^  laws  of  value  are  concerned.  I  use  the  term 
c«^-u  v^*^ -v." service"  in  a  broad  sense,  which  includes  the  spe- 
cific sense  and  something  more.  I  mean  by  it,  the 
j^v^"  \  rendering  of  anything  for  which  something  is  de* 
v^«^  ■  manded  in  return.     People  sometimes  do  for  others 

what  are  called  services,  out  of  sympathy,  from  be- 
,,<  <^   .  nevole  nee,  from  duty;  but  the  characteristic  of  these 
.  -  is  that  they  are  free ;  nothing  is  demanded  in  return. 

^^.  *^ '  '■  '  These,  therefore,  fall  in  the  sphere  of  morals,  and 
Hf*^-^'  are  outside  the  pale  of  Political  Economy.  There 
is  no  such  thing  as  exchange  proper  within  the  field 
of  morals,  and  there  is  nothing  else  but  exchange 
proper  within  the  field  of  economy.  This  principle 
,  ,  ,      alone  marks  the  boundary-line  between  the  sciences 

„^-^V^^^      referred  to.     A  service,  then,  in  the  language  of  this  ,,^ 
vvT\.:,.  1,,    science,  and  as  the  word  will  henceforward  be  used  ^i^ 
»^*^x^.ini  these  pages,  is  anything  rendered  to  another  in     "*' 
Y  Cfv^-Vi. v'view  of  a  return,  and  for  the  sake  of  a  return.     The 
^^^^^^^''^iman  who  furnishes  you  a  barrel  of  apples,  does  you, 
j^n-s^M-         in  this  sense,  a  service  equally  with  the  physician 
lW*-'^*"- '*^ -^^^^  attends  upon  your  fever;  and  you  pay  thera 
wcA^A^O-  both  on  precisely  the  same  principles.     You  render 
Vvr-  ♦^u^  r     to  each   an   equivalent  servics  in  return.     To   pay 


.A^^. 


•         1<»''^     '»   '  ,,v^      0'_Ctvv>^v.     l'<^     'V^iv-iVv,t. 


ON  VALUE.  G9 

them  money  is  to  render  them  a  service,  just  as  to 
furnish  you  apples  and  medical  advice  were   a  ser- 
vice  to   you.     Whether    a   commodity,   as    apples, 
intervene  or  not,  is,  as  far  as  value  is  concerned,  a^^-^  jLtw 
matter  of  indifference.     The  more  specific  use  of  the  uf'sju^^^j' ^, 
term  "service,"  as  opposed  to  a  commodity,  is  in-p^*- 
deed  convenient,  and  will,  doubtless,  continue  to  be 
used :  the  broader  sense  is  exceedingly  useful,  and, 
by  its  aid,  we  clear  up  the  whole  subject  of  value. 

This  ultimate  definition  of  value,  namely,  that  iifJ       >  t^i\. 
is  the  relation  of  mutual  purchase  established  ^^' i±^ ^jifuui^ 
tween  two  services,  is  substantially,  but  not  in  form,>^<;c.aZ^^ 
the  definition  of  M.  Bastiat.     Mr.  Macleod's  defini- 
tion is  also  excellent,  though  I  cannot  give  it  the  pref-^,^^  ^^,  ,  ^ 
erence  :  —  "  The  value  of  any  economic  quantity  is  any  jiu**^: 
other  economic  quantity  for  which  it  can  be  exchanged^ 
If  the  question  relate  to  the  value  of  any  specific  %^^^'^^-<'- 
thing  whatever,  Mr.  Macleod's  answer  is  perfect ;  if  ^j--*^  '-f 
the   question  be.  What  is  Value  ?  the  other  answer 
seems  to  me  to  be  equally  satisfactory.    The  reasons 
why  we  may  feel  complete  confidence  in  it  will  ap- 
pear in  a  more  and  more  striking  light  as  we  proceed, 
and  until  we  conclude. 

In  the  first  place,  this  definition  covers  naturally  ^^^^^^  ^ 
and  easily  all  those  anomalous  cases  of  value  which -^^^^^^^^^^. 
have  been  so  hard  to  reduce  under  any  other  general      v 
view.     Take  for  instance  the  case  of  the  value  of  the^a-^^^ 
diamond.     The   English  school,  and  especially  Mr.<wtK:vvl>  • 
McCulloch,  claim  that  labor  is  the  source  of  value,j 
and  that  the  purchasing-power  of  everything  is  pro-  ^  ^^^ 
portioned  to  the  labor  which  it  has  cost.     Not  at  all 
is  this  the  law  of  value.     Mere  effort,  mere  work,  in  .^.  «>  v> ., 
itself  considered,  has  no  tendency  whatever  to  create  t'^  Cevl^.tyv-T 


70  ELEMENTS  OF  POLITICAL  ECONOMY. 

value.  Much  effort,  much  work,  as  by  a  dull  but 
Lt^'oii^  laborious  writer  of  a  book,  may  issue  in  very  little 
C^-vsxj  w-.:tu^  value.  Little  effort,  little  work,  as  by  a  skillful 
pleader  in  the  courts,  may  issue  in  very  great  value. 
^  (^^^^^J^^l},  Labor  is  not  so  much  a  cause  of  the  value  expected 
/U  fpo^>^*<  *^  accrue  as  it  is  a  result  of  the  value  expected  to 
^j^^  accrue.     Whately  puts  this  just  right  when  he  says : 

"  Tn  this,   as  in    so  many  other  points  in   Political 
Economy,  men   are   prone  to   confound   cause   and 
effect.     It  is  not  that  pearls  fetch  a  high  price  he^ 
cause  men  have  dived  for  them  ;  but,  on   the   con- 
trary, men  dive  for  them  because  they  fetch  a  high 
price."     In  other  words,  value  always  has  its  start- 
''^V^^*' ''  ing-place  in  Desires  ;  and,  although  effort  of  some 
v*«DU*-v*      sort  and  in  some  degree  is  always  associated  with 
desire  in  the  realization  of  value,  the  effort  alone  is 
<i,,^i    not  the  cause  of  the  value,  nor  can   the  value  be 
L^^^.^M  W^  said  to  be  proportioned  to  the  effort.     For  example, 
Ujilw-. ^s  lam  strolling  along  the  sea-shore,  I  accidentally 
liwifrt^T^^  P^^^^iv^   a  splendid   diamond    among   the   pebbles. 
i^U  ^      It  is  but  a  moment's  labor  to  appropriate  the  prize, 
, /tti:^^— V !   but  do  I  on  that  account  sell  my  diamond  for  one 
^'^^"^1  ^'"  ■  dollar  less  to  the  jeweller  or  the   prince?     No.     I 
Tu'^uSti^^  now  in  position  to  do  a   great  service  to  any- 
\^^i,^^^,    body  wanting  a  diamond.     I  demand  a  large  service 
u  c'ha:^^  ."^dn  return,  and  get  it.     I  say  to  the  man  who  wants 
it,  give  me  ten  thousand  dollars  for  my  prize,  and 
U^xh>^    (I    y^^  shall  have  it.     It  would  be  poor  mercantile  .logic 
y^^^     •         ^^"^  *°  r^ply :  Your  labor  is  not  worth  more  than 
-^-u  ru-A,      one  cent  a  minute,  and  it  did  not  cost  you  but  one 
.  .A  A  t_- minute's  labor  to  get  that  gem,  and  certainly  one 
cent   therefore,  is  a  fair  price  for  the  diamond.     He 
rather  reasons  in  this  way  :  Can  I  by  going  myself 


ON  VALUE.  71 

to  the  diamond-bearing  regions,  or  in  any  diamond 
market  elsewhere,  procure  for  myself  so  good  a  gem 
as  this  by  a  less  sacrifice  than  ten  thousand  dollars.  .^  ^^^^^  .^^^^^^^ 
He  resolves  this  question  mentally ;   and,  if  "^g^-"  3^__,^jv       i 
tively,  I  am  sure  of  getting  my  price.     In  that  case         JL,S^ 
I  am  offering  him  a  service  worth  at  least  ten  thou-^^^^-^  . 
sand  dollars.     No  one  else  is  in   position  to  render  <     ,^ 
him  the  same  service  at  so  favorable  a  rate.     If,  on'^^^--     ^ 
the  other  hand,  there  be  other  diamond  dealers  offer-  .       .  •, 

ing  gems  as  good  as  mine  for  less  than  ten  thousand         ^^^  ^ 


dollars,  then  I  have  pitched  my  demand  too  high ;     * 
my  service  is  not  worth  that  sum,  because  there  is  ''>'^^^*-^  ^  /d 
some  other  person  ready  to  render  the  same  service ^^^  ^^  ^ 
for  a  less  sum.     The  value  of  my  diamond,  there- 
fore, is  proportioned,  not  to  the  labor  which  it  has  ^'^''^^^  «^,  J^ 
cost  me,  but  to  the  service  which  I  am  able  to  ren-  [^  aj^^^^  <■ 
der  to  the  purchaser  with  it,  compared  with  the  ser-  tU^^vv^^j^  i 
vice  which  he  is  able  to  render  to  me.    I  take  advan- 
tage of  his  desire  for  the  diamond,  and  crowd  up  the 
price  as  near  as  I  can  to  the  point  at  which  he  will 
either  forego  the  possession  of  a  diamond  altogether,  l'*'*'^-^  f^ 
or  can  obtain  a  similar  one  from  some  other  party.  7^  s^^ 
He  takes  advantage  of  my  desire  for  the  money,  '^fjuui-ilX^ 
and  crowds  down  the  price  as  near  as  he  can  to  the 
point  at  which  I  can  either  find  another  purchaser, 
or  should  prefer  to  retain  the  diamond  myself.     The 
comparison  and  adjustment  of  these  two,  my  ser- 
vice to  him  and  his  service  to  me,  fixes,  for  that  sale, 
the  value  of  the  diamond. 

And  here  we  must  stop  to  notice  what  an  exceed- 
ingly good  word  the  English  language  provides  us  ,^/^  (s^^ 
with,  in  this  term  service.     It  explains  perfectly  all  ^j^^^^^^^ ^ 
anomalous,  as  well  as  all  common  cases  of  value. 


^ 


72  ELEMENTS  OF  POLITICAL  ECONOMY. 

It  combines  in  its  own  proper  meaning  all  the  ele- 
irxu  e  t         ments  which  make  up  and  which  vary  value.     First, 
J^'Xo  Ay,\t  implies  always  two  persons,  the  person  rendering 
and  the  person  receiving  the  service.    Next,  it  always 
implies  some  effort  on  the  part  of  the  person  render- 
ing, and  some  satisfaction  on  the  part  of  the  person 
L  fSj^v-i^       receiving  the  service.      Thus  when  one  service  is 
/j-jii^i  ^^     spoken  of  there  are  always  implied  two  persons  and 
«^vo  ^  (j^ux,  two  things,  and  the  two  things  are  the  effort  of  one 
'^j^tLc^/.,  person  and  the  satisfaction  of  another.     But  when 
two  services  are  spoken  of  as  exchanged,  as  is  always 
the  case  in  Political  Economy,  there  are  implied,  as 
before,  two  persons,  each  of  whom  makes  an  effort 
,  ^      for  the  other,  each  of  whom  is  recipient  of  a  satis- 

*^?"^  '       faction  which  comes  from  the   effort  of  the  other, 
F^  '  and  each  of  whom  estimates  in  the  light  of  his  own 


satisfaction  that  which  is  received  as  compared  with 

,,«^x*A^»  '     that  which  is  rendered.     It  is  this  reciprocal  estima- 

V.      9a.    1--    ^.^^  alone  that  constitutes  value ;  and  it  is  the  excel- 

'^'^''^*^*^"' -^  lence,  I  may  almost  say  the  glory  of  the  term  ser- 

0  vice,  that  it  gathers  up  in  its  own  signification  all 

the  elements  which  go  to  determine  value,  and  which 

ever  vary  its  amount.     As  here  is  the  very  kernel 

and  core  of  our  science,  illustration   will  be  well 

j^  <tsr^~      bestowed  at  this  point.     Let  the  parties  be  A  and 

'Xfi-*^\^^      B,  in  position  to  render  each  other  a  mutual  service. 

o-^-^,^^^-^      A.  has  a  desire  which  B's  effort  can  meet,  and  B  has 

a  desire  which  A's  effort  can  meet.     Up  to  the  point 

when  the  exchange  takes  place  there  are  only  four 

elements  that  play  any  part  in  the  transaction  as 

preparatory  to  it,  namely,  two  desires  and  two  efforts. 

In  the   act  of  exchange  itself  two  other  elements 

-.come  into  being,  namely,  two  relative  estimates,  A's 


ON   \rALUE.  73 

estimate  of  B's  effort  for  him  as  compared  with  his 
own  effort  for  B,  and  B's  estimate  of  A's  effort  for 
him  as  compared  with  his  own  effort  for  A.     As  a 
result  of  the  exchange,  and  as  that  for  the  sake  of 
which  the  whole  series  took  place,  there  appear  two<^  9^*A>^ 
other  elements,  namely,  two  satisfactions.     Here  is^^o^'^*-^-^ 
the  whole  of  it.     Now,  then,  any  change  in  any  one  /tG^  S'JCu 
of  the  first  four  elements  will  vary  value;  and  there K;^-^.- 
is  nothing  else  in  the  world  that  can  vary  it.     If  A^s^M^  *->  ^ 
desire  for  that  which  B  is  ready  to  render  be  less- *^"*'*"*^ 
ened,  the  othei^  elements  remaining  the  same,   A's 
estimate  of  B's  effort  as  compared  with  his  own  is 
lessened,  and  value  is  at  once  affected.    If  A's  desire 
be  increased,  other  things  being  equal,  his  estimate 
of  B's  service  as  compared 'with  his  own  is  increased, 
and  value  is  affected.    Just  so  any  diminution  or  en- 
hancement of  B's  desire  for  that  which  A  is  ready 
to  render,  acts  at  once  upon  B's  estimate  of  A'a 
effort  as  compared  with  his  own,  and  consequently 
acts  at   once  upon  value.     Again,  any  change   in 
either  effort  as  compared  with  the  other,  such  as  its 
becoming  more  or  less  onerous  than  the  other,  will 
of  course  affect  the  estimate  of  the  one  as  measured 
by  the  other,  and  of  course  also  will  vary  value. 
These  first  four  elements  then  are  not  only  the  ele-  r.r^j^^^^  ^ 
ments  out  of  which  value  subsequently  springs,  but  ^^^^^^     -p 
also  are  the  elements  any  change  in  any  one  of        ,^1^ 
whicn,  the  others  remaining  the  same,  will  tend  ^^l^j^^:^ 
vary  value,  and  without  a  change  in  some  one  of  n,vv^i;_^ 
which,  relatively  to  the  others,  value  never  will  be^^^^^^^ 
varied.     The  term  services  expresses  just  these  ele-^^^^^j3 
ments  which  play  and  vary  as  preparatory  to  the 
realization  of  value.     Value  itself  is  realized  from 


74  ELEMENTS  OF  POLITICAL  ECONOMY. 

,.f^,N  the  adjustment  of  the  fifth  and  sixth  elennents,  tha 
'*  ''  is  to  say,  from  the  equalization  of  A's  estimate  of 
B's  service  with  B's  estimate  of  A's  service.  This 
adjustment  also,  together  with  the  remaining  ele- 
ments, the  two  satisfactions,  are  all  implied  in  the 
expression  mutual  services,  or,  if  you  please,  two 
services  exchanged.  If  any  of  my  readers  object  to 
this  paragraph  as  abstract,  I  have  only  to  reply  that 
it  is  no  more  abstract  than  the  subject-matter;  and 
if  any  of  them  find  difficulty  in  the  relative  nature 
of  the  transaction  unfolded,  in  th'fe  fact  that  the 
views  and  comparative  estimates  of  two  persons 
must  be  kept  in  mind  throughout,  I  can  only  say, 
that  this  science  starts  with  a  relation  and  has  to  do 
with  a  relation  every  step  of  the  way  to  the  end. 
^  ^y  This  is  the  one  intrinsic,  unavoidable  difficulty  that 
lies  at  the  threshold  of  the  science;  and  whoever, 
by  taking  pains  at  the  outset,  familiarizes  this  diffi- 
culty to  his  thoughts,  and  thus  overmasters  it,  will 
walk  thenceforward  with  positive  pleasure  through 
the  whole  economic  domain.  And  if  there  ever  was 
a  science  grateful  for  a  word,  as  lessening  its  inhe- 
rent difficulties  and  helping  explain  its  phenomena, 
Political  Economy,  which  has  wandered  these  twice 
forty  years  in  the  wilderness  of  wealth,  thankfully 
accepts  in  the  term  service  its  latest  and  most  impor- 
tant gift. 

In  the  second  place,  the  definition  of  value  which 
is  here  given  expands  the  field  of  Political  Economy 
to  its  natural  limits.  Even  Adam  Smith,  and  the 
English  economists  generally,  while  defining  wealth 
as  consisting  of  material  commodities  only,  have 
experienced  a  difficulty  in  excluding  from  the  do- 


ON  VALCJE.  75 

main  of  the  science  certain  mere  services,  and  in 
denying  that  value  resides  in  these  services.     Some 
have  endeavored  to  avoid  the  difficulty  in  one  way     ''^'^-♦-'^^ 
and  some  in  another.     Some  have  stigmatized  those '^  ""^'^'^'^ 
who  render  a  mere  service  to  society  as  unproduc- 
tive laborers,  and  have  gifted  with  the  title  of  pro- 
ductive laborers  all  those  who  bring  forward  some 
vendible  commodity.     John  Stuart  Mill,  as  we  have 
seen,  enlarged  his  definition  of  wealth  so  as  to  take 
in  all  those  sorts  of  mere  services  whose  action  goes 
directly  to  swell  the  volume  of  material  commodi- 
ties.    It  is  conceded  then  that  value  resides  in  some  ^  a/-**-^ 
services ;  why  not  then  in  all  services  which  are  pufcL*^-^^-^tSu« 
forth  for  the  sake  of  a  return  ?     "Why  allow  value  to  **Aw.  <vu*i/ 
a  service  which  comes  to  be  embodied  in  a  commod-ocOL  ^a^ 
ity,  and  deny  the  term  to  another  service  just  as|»^  ft;^ 
necessary  to  our  comfort  that  is  not  thus  embodied?  <^^^«^'^i 
Why  class  the  brick-maker  as  a  productive  laborer, 
and  refuse  the  epithet  to  the  hod-carrier,  without  a    a   ~f 
whose  help  the  bricks  would  never  reach  their  ulti- 
mate destination  ?     The  truth  is  there  is  no  ground 
for  this  distinction ;   and  the  very  difficulty  which 
the  various  writers  have  found  in  trying  to  make  it, 
is  a  pretty  sure  proof  that  it  ought  not  to  be  made 
at  all.     By  making  its  definitions  such  that  valu6  S:^^^ -^^^ 
can  only  be  supposed  to  reside  in  tangible  commod-^-tl*-  *^-*^ 
ities.  Political  Economy  excludes  itself,  without  any 
good  reason,  from  a  large  portion  of  its  own  field. 
Let  us  see  if  there  be  any  good  reason.     For  exam-^ 
pie,  a  man  buys  a  spelling-book  for  his  boy,  for  the  ^^^  "*^  ' 
sake  of  his  learning  to  read.    He  then  hires  a  teacher 
to  teach  him  to  read.     According  to  the  usual  defi- 
nitions the  spelling-book  has  value,  while  the  service 


76  ELEMENTS  OF  POLITICAL  ECONOMY. 

of  the  teacher  has  none.  But  why  has  it  none  ?  It 
has  to  be  paid  for,  certainly,  as  much  as  the  spelling- 
book  has  to  be  paid  for.  There  are  two  separate 
exchanges ;  first,  of  money  for  the  spelling-book,  and 
second,  of  money  for  the  service.  Both  are  made 
with  the  same  object  in  view,  namely,  that  the  boy 
may  learn  to  read.  The  want  of  a  spelling-book 
and  the  want  of  a  teacher  are  the  two  external 
obstacles  in  the  way  of  reaching  that  object;  and 
the  father  overcomes  them  both  by  similar  means, 
that  is  to  say,  by  an  exchange ;  and  there  is  no  such 
difference  in  the  two  transactions  as  will  justify  oi 
even  tolerate  the  distinction  sought  to  be  made  be- 
tween them.  The  teacher  sells  his  service.  The 
shopkeeper  sells  his  book.  The  father  renders  a  ser- 
vice to  each  equivalent  to  that  received  from  each. 
Political  Economy  now  claims  jurisdiction  over  both 
transactions  alike,  and  affirms  value  as  truly  of  the 
service  as  of  the  commodity,  and  more  truly  of  the 
service  than  of  the  commodity,  inasmuch  as  it  stands 
ready  to  prove  that  so  far  as  value  resides  in  any 
commodity  it  resides  there  simply  in  virtue  of  the 
human  services  which  have  been  concerned  in  its 
production  and  which  will  be  subserved  by  its  ex- 
change. What  is  ultimate,  therefore,  in  all  exchange, 
is  services  and  not  commodities  ;  and  the  services 
which  are  bought  and  sold  in  every  department  of 
life,  the  services,  for  example,  of  the  lawyer,  the  phy- 
sician, the  clergyman,  the  teacher,  the  editor,  the 
musician,  fall  as  much  within  the  province  of  Polit- 
ical Economy  as  the  traffic  of  commodities  in  the 
market-place.  Our  science  asserts  its  claim  of  juris- 
diction wherever  services  are  mutually  exchanged. 


ON   VALUE.  77 

A  third  advantage  of  the  definition  of  value  now  9,<J^4^^^^ 
given,  and  one  closely  connected  with  the  last,  will 
be  seen  in  the  fact  that  it  frees  the  discussion  from 
a  perplexing  error  which  has  long  infected  this  class 
of  inquiries,  namely,  that  value  is  somehow  or  other 
con nected[  with  matter.     This  notion  has  controlled  ^TZ^ 
the  definitions  of  wealth;  has  led,  as  we  have  just/7[^^^ 
seen,  to  groundless  distinctions  among  services ;  and 
has  taken  possession  of  language  so  thoroughly  that 
no  judicious  writer  will  attempt  at  this  late  day  to 
dislodge  it  from  that  strongest  of  the  citadels  of 
error.     Rather  than  disturb  the  current  nomencla- 
ture of  business  he  will  allow  such  expressions  aa 
these  to  stand:  Gold  has  value,  strawberries  have 
value.     But  it  is  very  easy  to  show  that  value  does  Val^^ 
not  reside  in  matter,  or  in  any  form  of  matter,  hut ^^y*^*^-'^^^^ 
only  in  human  services  exchanged  ;   and  that,  there-^^  ^'^"^^ 
fore,  value  is  never  of  God's  creation,  but  always  of  *^*^^ 
men's  exertion.      We  shall   see   abundantly,  before 
we  finish  the  chapter,  that  utility  is  one  thing  and  U<<^  c 
value  quite  another.     No  effort  of  men  can  add  one  'i^*^-<>-<- 
particle  to  the  existing  matter  of  the  globe,  but  it  ha8^^,u*^>».v^ 
been  supposed  that  the  efforts  of  men,  by  changing  ^jt^v^oZiu* 
the  form  of  existing  matter,  impart  the  quality  of  cU^^f^ 
value  to  it,  and  that  thenceforth  the  value  remains 
fixed  in  the  matter  itself.    The  efforts  of  a  woodman, 
for  example,  with  the  cooperation  of  nature,  can  trans-^^,^^j_JL< 
form  the  stock  of  a  tree  into  wooden  bowls,  and  value  ['^■^y.^,,^..^ 
is  now  supposed  to  reside  in  the  vendible  bowls,  and 
the  current  language  is,  that  each  bowl  has  a  value 
of  fifty  cents.     Why  has  it  a  value  of  fifty  cents?  A  ^^i.j^w 
Clearly  enough,  to  reward  his  service  who  felled  theV^^'^  '  ^' 
tree,  and  sawed  the  block,  and  then  hollowed  out  the  I'S-^^' 


78  ELEMENTS  OF  POLITICAL  ECONOMT. 

bowl.  But  the  service  having  been  employed  upon 
the  matter,  and  being  embodied  in  it,  is  not  what  is 
really  sold  now  the  matter,  and  not  the  service  ?  I 
answer,  No.  What  is  really  sold  is  the  service,  and 
•^^  not  the  matter.     And  this,  which  at  first  sight  might 

«X^^  not  be  thought  important,  but  which  is  really  very  im- 
portant, becomes  apparent  as  soon  as  we  reflect  that 
any  changes  in  the  conditions  of  the  service  instantly 
affect  the  value.  Our  woodman  has  on  hand  a  stock 
of  one  hundred  bowls,  which  he  offers  for  sale  at 
fifty  cents  apiece,  as  fairly  rewarding  his  personal 
services  in  their  production.  But,  unknown  to  him, 
an  enterprising  neighbor  has  invented  a  machine 
which  enables  him  to  make  bowls  in  every  respect 
equal  to  the  others,  and  to  offer  them  at  twenty-five 
cents  apiece.  Whoever  now  wants  a  wooden  bowl 
can  have  that  service  rendered  him  for  twenty-five 
cents  return.  The  first  man  finds  that  he  cannot 
sell  a  bowl  for  over  twenty-five  cents,  and  that  his 
stock  of  one  hundred  has  sunk  at  once  in  value  from 
^c^  (U*i.  fi^^y  dollars  to  twenty -five  dollars.  What  is  the 
a^\^uA  matter  with  his  bowls ?  The  matter  is  not  in  the 
matter.  The  matter  is  all  there,  and  the  form  of 
the  matter  is  all  there,  but  the  value  is  just  one  half 
escaped,  because  the  service  which  he  can  render  to 
a  buyer  by  a  bowl  has  been,  by  the  enterprise  of  hi& 
neighbor,  just  one  half  lessened.  Value  then  follows 
the  fortunes  of  services,  and  varies  as  they  vary,  just 
as  much  when  they  have  been  employed  upon  com- 
modities, as  when  they  are  independent  of  them, 
and  we  see  that  the  value  resides  in  services  com- 
pared, and  not  in  matter  at  all. 


I 


ON  VALUE.  79 

I  now  proceed  to  indicate  the  manner  in  which 
language  came  to  be  used  in  such  a  way  as  givos^^,^  ,1,^ 
color  to  the  notion  that  value  resides  in  the  com-T^  b^  cy^ 
modities  rather  than  in  the  services.  An  instance^xtm^^ 
will  bring  the  whole  subject  before  us  clearly  In 
many  parts  of  the  United  States  delicious  wild 
strawberries  may  be  had  in  their  season  for  the 
simple  picking.  The  pastures  and  meadows  are 
open  to  every  comer,  and  the  strawberries  are  con- 
sidered to  belong,  not  to  the  owners  of  the  fields,/^ -"^^^ 
but  to  any  one  who  takes  the  labor  of  picking  ihef^>*-^^ 
fruit.  Let  us  suppose  that  my  family  are  fond  of 
the  berries,  and  that  no  member  of  it  likes  to  un- 
dergo the  labor  of  picking  them,  and  that  I  hire 
some  girl,  who  offers  her  services  for  the  purpose, 
to  go  to  the  fields  and  gather  some  of  the  fruit  for 
us.  When  she  returns  I  pay  her  for  her  service. 
She  does  not  conceive  of  any  value  residing  in  the 
strawberries  themselves.  Neither  do  L  She  makes 
a  series  of  efforts  for  the  gratification  of  my  family, 
and  is  paid  for  her  efforts.  Language  recognizes 
the  true  state  of  the  case,  and  she  does  not  say  now 
that  she  sells  us  the  berries,  and  we  do  not  speak  of 
buying  the  berries  of  her.  She  thinks  only  of  her 
service,  we  think  only  of  her  service,  she  is  paid  only 
for  her  service:  language  is  exact  in  the  premises. 
The  next  day,  as  the  girl  is  about  to  go  for  us  again, 
my  neighbor  says  to  her,  "  You  bring  me  as  many, 
and  I  will  pay  you  as  much."  The  third  day,  a 
second  neighbor  makes  a  similar  bargain  with  her, 
and  she  brings  strawberries  for  the  three  families, 
and  is  paid  in  each  case  for  her  service.  The  girl, 
on  the  fourth  day,  taking  it  for  granted  that  we  shall 


80  ELEMENTS  OF  POLITICAL  ECONOMY. 

be  likely  to  want  strawberries  that  day  also,  does  not 
wait  to  be  sent,  makes  no  bargain  for  her  services 
beforehand,  but  goes  and  gathers  the  fruit.  This 
time  there  is  a  change  of  language  when  she  comes 
to  my  door.  She  now  offers  to  sell  me  strawberries, 
"  How  much  are  they  worth  ?  "  I  ask.  She  names 
probably  the  same  sum  which  she  had  before  re- 
ceived for  the  service  of  picking  the  same  quantity. 
She  could  not  materially  increase  it,  because  there 
are  doubtless  other  girls  who  are  ready  to  render  the 
service  which  she  before  rendered,  at  the  same  rate. 
But  attention  is  now  drawn  away  from  the  service 
to  the  berries,  and  the  idea  of  value  is  attached  to 
the  berries,  and  language  adopts  the  illusion,  and 
says,  "the  berries  are  worth  so  much."  Who  does 
not  see,  however,  that  the  transaction  is  substantially 
the  same  as  before  ?  Who  does  not  see  that  it  is 
only  by  a  figure  of  speech,  convenient  indeed,  but 
still  only  a  figure,  that  the  berries  are  now  said  to 
have  value  ?  If  there  be  no  difference  in  the  last 
case  as  compared  with  the  former  cases  in  the  two 
desires  and  in  the  two  efforts,  it  is  plain  to  reason 
that  there  can  be  no  difference  in  the  value,  and  con- 
sequently no  difference  in  that  which  is  really  sold. 
But  my  desire  for  the  berries,  my  effort  as  represented 
in  the  price  paid,  her  desire  for  the  money,  and  her 
effort  as  represented  in  the  picking,  are  all  just  as  be- 
fore. She  expected  me  to  take  them,  and  I  took 
them  as  before.  The  value,  therefore,  the  purchas- 
ing-power, resides  not  in  the  berries,  but  in  the  ser- 
vice; that  is  to  say,  in  that  which  she  renders  as 
compared  with  that  she  receives;  and  it  is  only  a 
freak  of  language  which  leads  us  to  suppose  other- 


ON  VALUE.  81 

wise.     This  is  but  a  simple  instance,  but  the  princi- 
ples of  the  instance  are  applicable  to  all  commodities 
whatsoever.      It  is  only  mediately  and  figuratively  ^^t!^  ^ 
that  commodities  can  be  said  to  have  value  at  all;/    ^y 
and  if  we  use  the  common  language,  and  say  that  /U,i-^  n 
they  have  value,  we  must  always   remember   that 
they  have  it  simply  and  solely  in  consequence  of  the 
human   services  which   have  been   employed    upon  ^^^^^  ^ 
them,   and  which    may   be   subserved    by  them,  as^^-^f^^-"^ 
related  to  those  other  human  services  for  which  they  '^wro-c^ 
may  be  exchanged.     If  this  be  true,  and  it  seems  to 
me  certain  that  it  is  true,  it  throws  a  flood  of  light 
upon  the  whole  field  of  value.     More  attention  must  M*rr^  . 
be  given  hereafter,  in  Political  Economy,  to  persons,^-  / 
and  less  to  things.     Man  and  his  wants,  man  and 
his  efforts,  become  at  once  the  chief  topics,  while 
the  material  products  on  which  efforts  are  employed, 
and  which  minister  to  wants,  sink  in  relative  posi- 
tion.    It  follows  also  from  this  distinction,  that  there 
is  not  so  much  difference  as  is  commonly  supposed, 
when  a  man  works  for  others,  and  when  he  sets  up' '  r' 
for  himself,  —  between  a  iourneyman  and  a  master.  '"'~^ 
The  journeyman  sells  his  services,  and  the   master j-uv.      . 
sells  nothing  more  or  other  than  his  own   services. 
The  services  of  the  master  may  not  be  manual,  they  f^^r     , 
may  be  merely   supervisory,   or  they   may   be  con- ^.^,^^^6^ 
nected  with  the  use  of  his  capital ;  but  the  finished 
product,  when  it  is  ready  for  the  consumer,  repie- -ivJ^JLS 
sents  the   aggregate   of  the   human   services  which  ^4^-^*^^ 
have  been  employed  upon  it,  and  whoever  sells  it,','^'K'^ 
se.ls  those  services,  and  its  ultimate  value  is  deter-    j     /^ 
mined,  as  all  other  value  is,  by  a  double  comparison,  ^  ^,  2 
the   purchaser's   comparison   of  the   service   of  the  4^:., 

6  .<?;■;-'-' 


82  ELEMENTS  OF  POLITICAL  ECONOMY. 

product  to  him  with  that  which  he  renders,  and  the 
seller's  comparison  of  the  service  he  receives  with 
that  of  the  product.  Service  for  service,  in  the  last 
analysis,  rather  than  commodity  for  commodity,  is 
the  rule  of  value  and  the  law  of  exchange. 

It  may  be  observed,  in  the  fourth  place,  that  a 

'principal  merit  of  the  definition  of  value  insisted  on 
in  this  chapter,  is  the  discrimination  which  it  allows 

"  between  utility  and  value.  It  is  absolutely  essential 
that  these  two  ideas  be  not  confounded.  But  they 
are  confounded  in  all  the  earlier  writers  on  wealth. 
The  word  wealth  itself  inextricably  confounds  them. 
Whole  discussions  in  Adam  Smith  are  marred  by 
his  not  consistently  attending  to  the  distinction, 
which  he  himself  draws  in  one  place,  between 
"  value  in  use  and  value  in  exchange : "  meaning 
by  the  former  expression  simple  utility.  Say  mixes 
up  the  two  ideas  even  more  completely  than  Adam 
Smith  does ;  and  the  errors  of  the  two  writers  in  this 
iespect  gave  rise  to  the  twentieth  chapter  of  JMr. 
Ricardo's  book,^  in  which  the  difference  between 
utility  and  value  is  pretty  clearly  unfolded.  Mr. 
McCulloch,  too,  always  insists  upon  this  difference, 
and  correctly  maintains  that  the  distinguishing  char- 
acteristic of  utility  is,  that  it  is  gratuitous ;  although 
the  theory  of  value  of  each  of  these  writers  is  too 
narrow,  unduly  restricting  the  field  of  Political  Econ- 
omy by  assuming  that  value  rigidly  inheres  in  com- 
modities only.  The  example  of  these  writers  shows 
that  the  distinction  referred  to  can  be  made  even  un- 
der their  definition  of  value,  but  it  is  not  so  easily  and 
practically  made  as  under  the  true  definition,  because 

1  Principles  of  Political  Economy  and  Taxation. 


ON  VALUE.  88 

in  the  true  definition  attention  is  inevitably  drawn  to 
two  persons,  instead  of  to  one  thing,  and  utility,  which 
is  simple  capacity  to  gratify  any  desire,  is  neatly  dis- 
criminated, even  in  the  nomenclature  itself,  from  the 
mutual  efforts  by  which  the  mutual  desires  are  met. 
The  word  service  enables  us  to  draw  the  distinction, 
and  to  hold  it  fast. 

Utility,  then,  is  the  capacity  which  any  thing  or  /A^^  '^ 
any  service  has  to  gratify  any  human  desire  whatso- 
ever.    Political   Economy  has    nothing  to  do  with 
the  estimation  in  which  different  desires  are  held  hy^^r^^ 
a  philosopher  or  a  moralist     It  is  enough  to  consti-  ^TT^ 
tute  for  it  utility,  if  anything  will  meet  any  body 'a  ^^^^^^^^ 
desire  or  serve   anybody's  purpose.     In  this  sense, /i'^^ 
which  is  the  etymological  and  only  just  sense  of  the    \  . 
word,  ardent  spirits  have  utility  just  as  wheat  has '^^';'' 
utility.     The    same   thing  may  have  no  utility  for  ^  " 
one  man,  a  low  utility  for  another,  and  a  very  high 
utilitv  for  a  third;  since  the  first  has  no  desire  for  it,"        ' 
the  second  a  feeble,  and  the  third  a  strong  desire  for^., 
it.     Desires  are    personal  to  individuals.     There  is 
no  common  standard  with  which  they  may  be  com-""^'  ' 
pared.     They  are  not  exchangeable.     Utility  is  the^^ 
capacity  which  anything  has  of  meeting  any  one  of  '         - 
these  desires  at  any  time  or  in  any  place.     But  some 
things  have  this  capacity  in  a  high   degree  which  ^'    '  - 
are  never  exchanged,  which  are  never  bought  or  sold, 
and  which  consequently  can  have  no  value.     The 
air  we  breathe,  the  light  in  which  we  recreate  our- 
selves, the  water  we  drink  fi:om  the  spring  or  brook, 
all  have  the    highest   utility,  but  no  value.     They 
connect  themselves  with  no  service.     We  give  noth- 
ing  for   them.     They,  and    such    as   they,  are   tne 
direct  gifts  of  God.     Thev  are  gratuitous. 


s^,  V 


.^^.^..^^^EMENTS  OF  POLITICAL  ECONOMY. 

But  utility  is  always  present  in  all  value  also, 
since  it  is  an  element  in  all  service ;  and  the  utility 
that  appears  in  connection  with  value  is  always  de- 
rived  partly  from  Nature  and  partly  from  man.  It  is 
impossible  to  say,  in  any  given  case,  how  much  is 
attributable  to  Nature  and  how  much  is  attributa- 
ble to  man.  It  might  seem  at  first  sight,  as  if, 
in  the  case  of  the  diamond,  or  in  the  case  of  the 
strawberries,  the  utility  were  wholly  the  gift  of  Na- 
ture, but  the  diamond  undiscovered  among  the 
pebbles,  and  the  strawberries  unpicked  upon  the 
meadows,  can  hardly  be  said  to  have  utility,  much 
less  value.  The  human  service  that  fits  each  of 
thesi  to  meet  a  present  desire  is  an  essential  contribu- 
tor to  their  utility.  On  the  other  hand  it  might  seem 
as  if  the  utility  of  a  painting  were  wholly  referable 
to  the  art  of  the  painter  ;  but  the  tenacity  of  the  can- 
vas, the  flexibility  of  the  brush,  and  the  brilliancy  of 
the  colors,  are  the  contribution  of  Nature.  Although, 
therefore,  all  utility  that  ever  appears  in  connection 
with  value  is  partly  due  to  the  efforts  of  men,  it  is 
(none  the  less  essential  to  clear  thinking  in  this  de- 
jipartment  to  separate  distinctly  in  the  mind  the  utility 
from  the  value.  The  utility  of  a  service  may  be 
"great  and  its  value  little ;  the  utility  of  a  service  may 
be  great  and  its  value  also  great.  They  are  distinct 
things.  They  become,  as  it  were,  commingled  in  the 
service  rendered,  but  the  utility  is  one  thing,  and  the 
value  a  distinct  thing.  Utility  is  ultiqaate  :  value  is 
mediate.  Utility  is  absolute  with  reference  to  the 
individual :  value  is  always  relative.  The  utility  in- 
volved in  every  valuable  service  is  derived  from  two 
sources,  —  the  free  contribution  of  Nature,  and  the 


ON   VALUE.  85 

onerous  contribution  of  man  ;  but  the  value  of  such 
services  in  general  tends  perpetually  to  become  pro-  ^ 
portionate   to  the  onerous  human  contribution,  and^'^*^"^ 
not  to  the  aggregate  utility.     If  the  service  be  unique,^.^^ 
if  only  one  person  or  a  few  be  in  a  position  to  render  ^^jiCZcc^ 
it,  no  useful  principle  can  be  laid  down,  which  shall 
discriminate  the  two  components  of  the  utility ;  but 
in  respect  to  the  vast  mass  of  services,  of  which  a 
market  rate  can  be  predicated,  it  is  very  clear  that  the 
competition  with  each  other  of  those  who  are  ready 
to  render  them,  will  fix  the  current  value  at  a  point 
which  shall  just  about  compensate  for  the  onerous 
elements  involved.    That  portion  of  the  utility  which 
is  the  free  gift  of  Nature  will  be  very  nearly  a  com- 
mon factor  in  that  whole  set  of  services.     The  action  ^    , 
of  competition  will  eliminate  this  common  factor, . 
and  tend  constantly  to  determine  value  on  the  basis  ^j„U^^ 
merely  of  what  man  has  done  to  impart  utility  to-"*^  ^ 
those  services.     Thus,  if  ten  men  bring  ten  horses  to  "^"'4-^^ 
the  market  to  exchange  against  money,  though  the 
utility  of  the  horses  be  derived  in  large  degree  from 
the  free  gifts  of  Nature,  yet  there  are  some  of  the 
owners  who  will  be  willing  to  part  with  their  prop- 
erty at  a  price  that  will  compensate  them  for  what 
they  themselves  have  contributed  towards  that  utility. 
The  action  of  these  will  tend  to  fix  the  price  of  the 
whole  ten.     There  is  no  tendency  in  value,  then,  to 
proportion  itself  to  the  aggregate  utility  of  a  service, 
but  there  is  a  tendency  in  value  to  proportion  itself 
to  the  aggregate  of  the  onerous  human  efforts  repre- 
sented in  a  service.  ClI'II^ 

This  principle,  which  I  deem  important,  perfectly  ?Z 
accounts  for  the  low  value  of  many  services,  which 


V 


86  ELEMENTS  OF  POLITICAL  ECONOMY. 

may  be  said  nevertheless  to  have  a  high  utility.  The 
girl  brings  delicious  strawberries  to  my  door  in  sum- 
mer. Their  utility  is  great,  their  capacity  to  gratify 
my  palate  and  that  of  my  family  is  exquisite,  but 
her  effort  in  picking  and  bringing  them  is  relatively 
little,  and  therefore  it  is  little  that  I  pay  her.  She 
cannot  charge  me  one  farthing  for  all  that  has  been 
■  done  for  the  fruit  in  the  wonderful  laboratory  of  Na- 
ture. Should  she  attempt  to  do  so,  there  are  doubt- 
less other  girls  willing  to  bring  me  the  frbit  for  a  fair 
equivalent  for  their  personal  efforts  only.  Utility 
and  value,  then,  are  different  things ;  we  must  cer- 
tainly believe  this,  when  we  see  some  things,  as  air, 
possessed  of  the  very  highest  utility  and  no  value  at 
all ;  and  other  things,  as  strawberries,  possessed  of  a 
high  utility  and  a  low  value. 
^  The  history  of  economy  is  full  to  a  surfeit  of  the 

^^  '  theoretical  errors  and  of  the  practical  blunders  whic  i 
have  come  from  confounding  value  with  utility  ;  and 
from  not  attending  to  the  fact  that  all  utility,  until 
some  human  service  has  been  mingled  with  it,  is 
absolutely  free.  God  is  a  Giver.  He  gives  sunlight, 
and  air,  and  water,  in  abundance.  He  gives  the 
earth,  with  all  its  materials,  and  with  all  its  powers, 
and  with  all  its  spontaneous  fruits,  gratuitously  to 
man.  At  the  very  first.  He  gave  to  man,  "  dominion 
over  the  fish  of  the  seas,  and  over  the  fowl  of  the 
air,  and  over  every  living  thing  that  moveth  on  the 
earth."  So  far  forth  as  these  gifts  minister  directly 
to  men's  wants,  there  is  utility  indeed,  but  no  value. 
But  since,  for  the  most  part,  human  services  are 
required  to  mould  these  gratuitous  materials,  to  har- 
ness these  gratuitous  powers,  to  make  these  gratui- 


ON   VALUE. 


87 


tons  fruits  and  animals  available  for  use,  and  since 
services  for  this  purpose  are  exchanged  among  men, 
value  springs  up  in  connection  with  these  utilities, 
but  must  not  be  confounded  with  them.     The  utili- 
ties, disengaged   from   the    service,  are   free.     God 
never  takes  pay  for  anything,  and  has  not  author- 
ized anybody  to  take  pay  in  his  behalf ;  what  is  paid^-*^^  ^ 
for  is  the  service  of  man,  and    not  the   bounty  of    -i^f^^ 
Nature.     Even  the  powers  of    Nature  which   men^*'^^^ 
avail  themselves  of  by  machinery,  such    as  water,  f^*' 
wind,  and  steam,  all  work  for  nothing ;  water  gravi-  ^ 
tates,  and  wind  blows,  and  steam  puffs,  for  nothing.'^  *'*'7^ 
These  all,  and  such  as  these,  help  to  create  utilities,  ';*:^*f^ 
but  ultimately  no  value.     Value  is  in   the  service  '^  ^^ 
which  makes  the  machine,  and  in  the  service  wbichvT^^ 
tends  it,  but   in  the  power  which  moves  it,  unless 7;?^^,- 
that  power  be  human  muscle,  there  is  no  value.         hu.^ 
Value  must  be  carefully  distinguished  from  Price.  ^''"" 
The  price  of  anything  is  its  purchasing-power  ex-  ^^ ''^ 
pressed  in  money ;  the  value  of  anything  is  its  pur- 
chasing-power  expressed  in    any  other   purchasing- 
power  whatever.     Price  is  a  relative,  word,  but  spe- 
cific ;  value  is  a  relative  word,  but  general.     When 
we  speak  of  the  price  of  a  service,  we    mean  the 
sum    of   money  which   that   service  will    buy;  but 
when  we  speak  of  the  value  of  a  service,  we  mean 
the  command  in  exchange  of  that  service  over  other 
services  generally.      Thus,  we  say,   "This  coat  is 
worth  twenty -five  dollars;"  that  is  its  price.     The 
value  of  the  same  coat  never  could  be  completely 
expressed,  because  it  would  require  a  comparison  not 
only  with  hats  and  gloves  and  boots  and  vests,  but 
with  all  other  things  which  are  ever  exposed  for  sale. 


iVv».  ••«» 


88  ELEMENTS   OF  POLITICAL  ECONOMY. 

^^^.  Therefore,  for  convenience'  sake,  value  is  commonly 

.\^.^  reduced  to  price.     By  knowing  the  price  of  various 

things,  we  readily  compare  their  value  relatively  to 
tk^i^ii^^  each  other.  Thus,  when  we  rknow  the  price  of  the 
,>:  u  »^v-^  coat  at  25  dollars,  and  of  gloves  at  2,  of  hats  at  5, 
^^'^v^"  and  vests  at  10  dollars,  we  easily  determine  the 
C^.'^  i^-'^t  value  of  the  coat  as  estimated  in  gloves,  hats,  and 
>  ,^  ^xw  ^-7o  vests,  namely,  that  its  value  as  compared  with  theirs, 
nettuu^/''  -  is  respectively  12^,  5,  and  2|  times  theirs.  The  value 
tvl.-^/  ^  of  anything  may  remain  nearly  uniform  while  its 
'"*^^^^''  price  may  greatly  vary.  At  the  present  writing 
^^U^  *'**(1875),  the  prices  of  almost  all  commodities  are 
"  i^  iC^tv*>.«*^"^^  above  the  normal  rate,  because  the  currency 
,  ,    of  the  country  is    much   depreciated   as   compared 

^  '  -,    with  gold;  but  the  value  of  these  commodities,  that 
1*^  *^        is  to  say,  their  power  of  purchasing  each  other,  is 
just   about   as   it  was  before  the    depreciation  be- 
gan.    All  other  commodities  have  risen  in  relation 
to  the  one  commodity,  money ;  or,  which  is  the  same 
thing,  money  has  fallen  in  purchasing-power  in  rela- 
tion to  all  other  commodities ;  and  there  is  in  conse- 
quence a  universal  rise  of  prices ;  but  it  would  be  a 
total  mistake  to  suppose  that  values  have  risen.     A 
*^  *lt^       bushel  of  corn,  now  selling  at  one  dollar,  will  buy  no 
more  labor,  or  hay,  or  cloth,  than  it  used  to  buy  when 
it  sold  for  less  than  one  dollar  a  bushel ;  because  the 
^A  ^  labor,  hay,  and  cloth  have  risen  in  relation  to  money 

in  the  same  proportion  as  the  corn  has ;  while  in  re- 
lation to  each  other  no  changes  have  supervened. 
Services  and  commodities,  with  few  exceptions,  ex- 
change with  one  another  at  the  old  rates,  —  value 
is  unaltered ;  but  exchange  for  money  at  much 
above   the    old   rates,  —  prices   have    risen.     More- 


ON  VALUE.  89 

over  it  is  not  possible  that  there  should  be  any  gen-  i/Jtu^  *v 
eral  rise  or  fall  of  values,  as  there  may  be  a  general  iM-^j.^ 
rise  or  fall  of  prices.    A  rise  in  the  value  of  anything  ^ 
implies  a  fall  in  the  value  of  those  things  with  which 
you  compare  it ;  that  is  to  say,  if  it  will  buy  more 
of  them,  they  will  buy  less  of  it.   Its  rise  in  value  im- 
plies their  fall  in  value,  and  conversely.     Every  rise 
in  value  of  any  service  involves  a  corresponding  fall 
in  other  services;    and  every  fall  in  value  of  any 
service  involves  a  rise  in  value   of   other   services; 
and  therefore,  a  general  rise  or  fall  of  values  is  im- 
possible.    Nothing  is  more  common  than  arise  or  fiuj^  en 
fall  of   value  in   particular  services.     Suppose,  for.^tr^.r 
instance,  an  improvement  in   machinery  by  which  n:e*«^^<»- 
broadcloth  can  be  made  with  one  half  the  former  — 

effort,  and   that  no   change  has  been  made  in  the  hvv^  ] 
efforts  requisite  to  make  the  gloves,  hats,  and  vests 
of  our  former  example,  and  no  change  in  the  views  ^l*-^w< 
of  those  who  wish  to  exchange  them.     The   coat  C^^*^ 
will  sink  at  once  to  about  half  its  former  value,  not 
only  in  relation  to  gloves,  hats,  and  vests,  but  in  re- 
lation to  everything  which  does  not  happen  to  be 
affected  by  a  similar  depressing  cause.     It   is   cor- 
rect to  say  that  the  value  of  the  coat  has  fallen.    As   .  . 
estimated  in  gloves,  hats,  and  vests,  its  value  now  is  .  13 

only  6i,  2^,  and  1^  times  theirs,  respectively.     But  o 
while  coats  have  fallen  in  relation  to  the  other  com- 
modities, the  other  commodities  have  risen  in  rela- 
tion to  coats ;  and  if  similar  improvements  should 
be  made  in  the  machinery  by  which    gloves,  hats,  £i**i/w.x»-v 
and  vests  are  made,  so  that  one  half  less  effort  will  )u^^^Vt^,«, 
bring  these  also  to  market,  views  of  parties  as  before^Oj^o^-^^ 
remaining  unchanged,  they  will  exchange  now  for'^'i^^^t'^ 


90  ELEMENTS  OF  POLITICAL  ECONOMY. 

coats  exactly  in  the  same  ratios  as  at  first,  namely, 
12^,  5,  and  2|,  respectively,  for  1.  As  soon  as  the 
improvements  affect  all  the  commodities  equally, 
value  stands  just  as  it  did  before  the  first  improve- 
ment was  made.  Views  of  the  parties  remaining 
the  same,  it  is  only  an  advantage  or  disadvantage 
1^  r**^  affecting  some  services  and  not  others,  that  will 
'^^  ^^  vary  their  value  in  exchange :  whatever  affects  them 

*^7'   *  all  equally  will  have  no  effect  upon  value.     Thus,  a 

universal  rise  of  wages  in  any  country,  provided  they 
iu  ^  \iM><,/;?  rise  in  all  departments  of  effort  equally,  will  have 
not  the  least  effect  upon  value ;  and  we  have  just 
seen  that  a  universal  rise  of  prices  at  present  ex- 
perienced in  this  country,  has  no  effect  whatever 
upon  the  general  purchasing-power  of  services  in 
exchange,  but  is  only  a  token  that  the  one  com- 
modity, money,  has  fallen  relatively  to  them. 

I  proceed  in  this  elementary  discussion  of  value 
,c*.K^v  <  to  inquire  whether  there  is,  or  can  be,  any  meas- 
4;i,c  ure  of  value  —  any  standard,  by  a  comparison  with 

which  we  may  determine  the  general  purchasing- 
power  of  different  services.  It  has  commonly  been 
lt*^^y  h-  supposed  that  there  is  such  a  measure,  and  po- 
litical economists  have  expended  a  great  deal  of 
strength  in  endeavoring  to  discover  what  it  is.  The 
results  have  hardly  been  commensurate  with  the 
zeal  and  patience  of  the  search.  Adam  Smith 
^  seems  at  one  time  to  regard  labor  as  the  best  meas- 

t,ifcvV>  Ki.       ure  of  value,  that  is,  the  quantity  of  labor  which  any 
commodity  will  buy  as  the  best  gauge  of  its  power 
to  buy  commodities  in  general.     At  another  time  he 
Jfi^y^r^ ,       seems  to  think  that  corn  is  a  better  measure  of  general 
exchange  value  than  labor.      Others  have  thought 


ON  VALUE.  91 

that  price  furnished  the  best  attainable  standard  of  1410**^  h^ 
comparison;    in  other  words,  that  the  quantity  of  ^^c^^  0 
gold  or  silver  which  anything  will  purchase,  will  best 
enable  us  to  determine  the  quantity   of    all  other 
things   which  it  will  purchase.      Others  still  have  /-,//. 
supposed  that  the  cost  of  production  of  any  com-,       t^ 
modity  would  give  the  most  accurate  rule  by  which  to'^^ 
decide  the  value  of  the  commodity,  that  is,  the  degree 
of  its  command  over  purchasable  articles  generally. 
But  the  truth  is,  a  measure  of  value  in  the  sense  inyo^  *^  ^ 
which  it  has  been  sought  after  by  these  writers,  isj^*^*** 
something  impossible  to  be  realized.     It  never  would 
have  been  sought  after,  unless  value  had  been  sup-     . 
posed  to  be  a  rigid  quality  inhering  in  commodities,  yH^^>*>^ 
and,  when  once  placed  in  them  by  whatever  process, 
to  be  invariable.    We  have  seen,  however,  that  value 
is  not  a  quality  inhering  in   any  one  thing,  but  is 
a  relation    subsisting   between  two    services  which 
two  persons  are  in  a  position  to  render  to  each  other; 
and  that  this  is  not  an  inflexible  relation,  but  is  vari- 
able by  any  change  in  the  views  of  the  two  persons^ 
by  which  either  of  them  puts  a  different  estimate 
upon  the  service  about  to  be  rendered  as  compared 
with  the   service  about  to  be  received.       We  have 
seen  sufficiently  already,  that  there  are  four  things,;^  v^-w^i^ 
and  only  four,  any  change  in  any  one  of  which  will*-tv<.  ^  y* 
vary  value ;  and  that  these  four  things  are  two  de-T^^-^^  * 
sires  and  two  efforts,  the  two  desires  belonging  tov-^-^^^^-  i 
two  persons,  and  the  efforts  made  by  two  persons **^"'^''*^ 
each  for  the  other.     Now  these  four  elements  are  in 
their  very  nature  so  liable  to  vary,  and  as  a  matter 
of   fact  do  so   constantly  vary,  that  no  man  who  ^  ^^^^.x^ 
clearly  perceives  what  value  is,  will  waste  time  and^^nZ. 


92  ELEMENTS  OF  POLITICAL  ECONOMY. 

ingenuity  in  searching  for  an  invariable  standard  of 
that  which  in  its  nature  is  variable  and  relative. 
But  while  no  reliable  measure  of  value  is  possible 
t\Mx^i.<^t^^    '    to  be  found,  there  are  certain  limitations  and  princi- 
\**^*^^'^       pies  of  much  importance  which  ought  to  be  given 
**^^^^'^-      in   this  connection.     Although   labor  alone,  as  we 
/? /^Ot^    have  seen,  cannot  be  regarded  as  the  cause  of  value, 
^€..vv'-i^  <    for^  if  it  were  asserted  to  be  such,  the  inquiry  would 
I      1  uU,_5pbe  pertinent,  what  is  the  cause  of  the  value  of  labor ; 
yet,  value  always  stands  in  connection  with  human 
JU^.i/^*.  efforts,  and,  the  mutual  desires  being  presupposed, 
j^a  there  are  always  limitations  of  value  lying  partly  in 

the  effort  made  by  the  person  serving  and  partly  in 
the  effort  saved  to  the  person  served.     In  every  ex- 
change, each   of  the  parties  is  reciprocally  serving 
and    served,   and   it   is   clear   that   they  would   not 
exchange  unless  the  service  which  each  renders  to 
the  other  is  less  onerous  than  the  effort  which  each 
would    have   to   make    if  each    served    himself  di- 
rectly.    It  costs  a  certain  effort  for  me  to  bring  water 
from  the  spring;  I  am  willing  to  pay  a  neighbor  for 
LcxUl..u '  .       bringing  it  for  me,  but  I  should   not  be  willing  to 
iiy  \%^  V        make  a  greater  effort  for  him  in  return  than  the  ef- 
^>^*P'  fort  is  to  bring  it  myself;  neither  should  I  be  willing 

to  make  an  effort  for  him  which  I  regarded  just  as 
onerous  as  the  bringing  the  water:  unless  there  is 
some  service  which  he  will  accept  less  onerous  to 
me  than  that,  I  shall  continue  to  bring  the  water  for 
myself.  On  the  other  hand,  he  will  not  render  the 
service  to  me  of  bringing  the  water,  unless  it  be  less 
onerous  to  him  than  the  doing  that  for  himself  which 
I  am  ready  to  do  for  him.  This  principle,  applica- 
ble to  all  exchanges  whatsoever,  draws  on  the  one 


ON    VALUE.  93 

side  the  outermost  line,  beyond  which  value  never ^^'^^t^ 
can  pass.     It  may  be  asserted  with  confidence  that '^'''**'*^ " 
no  man  will  ever  knowingly  make  a  greater  effort  to 
satisfy   a  desire  through    exchange,  than  the  effort 
needful  to  satisfy   it  without  an  exchange.     More- 
over, within  this  outermost  limitation  which  is  made 
by  the  comparative  onerousness  of  the  respective  ef- 
forts, there  is  a  second  limitation  of  a  similar  kind. 
To    pursue   the   same   illustration,   while    I   should 
never   make   an  effort  for  another  in  return  for  his 
bringing  the  water,   greater  than   that  required  to 
bring  it  myself,  the  return  effort  may  be  very  much 
less  than  that  effort,  and  may  sink  down  to  a  point, 
below  which  I  can  get  no   one  to  bring  the  water 
for  me.     Suppose  I  estimate  the  effort  required  to 
bring   the  water  myself  as  10 ;    and  that  there  are 
several  persons  who  would  be  glad  to  do  that  service 
for  me  for  a  return   service  which  I  estimate   as  8  ;^,;,^,JX« 
and  that  there  are  two  persons  who  are  willing  ^o^^jl^^^^ 
do  it  for  something  which  I  estimate  as  6 ;  and  that^^,^,,,,^^ 
there  is  only  one  person  who  will  do  it  for  a  return  Vk^J^.^^ 
service  which  I  regard  as  5.     It  is  evident  that  the  ^^-Cw  , 
extreme  limits  of  the  value  of  that  service  to  me  are 
10  and  5.     Higher  than  10  it  cannot  go,  lower  than       /^ 
5  it  cannot  sink.     I  should  render  the  service  esti-    '^7 
mated  as  8,  rather  than  forego   having  the  water 
brought  for  me  ;   but  I  shall  render  the  service  esti- 
mated as  5,  just  as  long  as  there  is  any  one  person 
who  will  make  the  exchange  with  me  on  those  terms. 
If  he  declines  the  exchange,  I  fall  back  on  one  of  ^ cf^e^ 
the  two  persons  in  the  class  above  him,  and  Yalue j^_^^  ^ 
rises  now  from  5  to  6.     It  will  be  steadier  at  6  thai\, 
It  was  at  5,  because  there  are  two  persons  ready  t< 


94 


ELEMENTS  OF  POLITICAL  ECONOMY. 


render  the  service  at  that  rate.     If  each,  however,  in 
turn  should  give  out,  I  should  then  be  obliged  to  fall 
back  upon  the  larger  class  ready  to  serve  me  for  a 
y^'  return  service  of  8.     At  this  point  the  value  would 

be  very  steady  from  the  presence  of  numerous  com- 
petitors  anxious  to  serve  me  at  that   rate,    and    it 
could  by  no  possibility  rise  above  10.     Between  10 
and  5  the  value  may  fluctuate,  but  it  cannot  over- 
pass these  limits  in  either  direction.     Therefore  we 
may  say  that  the  maximum  value  of  any  service  in 
J  exchange  is  struck  at  the  point  where  the  recipient 
"^"^^^  ^n      will  prefer  to  serve  himself,  rather  than  make  the  ex- 
U/»vtAxc*  ■       change;  and  the  minimum  value  of  any  service  in 
exchange  is  struck  at  the  point  below  which  the  re- 
cipient cannot  get  himself  served.     These  two  limits, 
it  will  be  observed,  are  found  in  the  two  elements 
which  we  have  called  efforts. 

But  there  are  also  limitations  of  value  in  the  two 
elements  which  we  have  called  desires.  In  the  fore- 
going illustration,  it  is  supposed  that  my  desire  for 
the  water  is  all  the  while  of  uniform  strength,  and 
the  desire  of  each  of  the  three  classes  willing  to  serve 
me  for  the  return  service  is  uniform  also,  though 
each  class  makes  a  different  estimate  of  the  compar- 
ative efforts.  Let  us  now  suppose  that  the  efforts 
on  either  side  remain  invariable,  but  there  is  a 
change  in  the  element  of  desire.  Any  capacity  in 
anything  to  gratify  any  desire  of  anybody  is  utility. 
For  simplicity's  sake,  let  us  look  only  to  the  one 
man  who  was  ready  to  bring  the  water  for  a  return 
'"^' ;  service  which  I  estimated  as  5,  and  suppose  that  he 
^^  is  the  only  man  who  will  do  me  the  service  on  any 
terms.     Let  now  the  utility  of  the  water  to  me  be 


ON  VALUE.  95 

increased,  and  let  him  know  that  fact,  all  other  ele- 
ments  remaining  as  before,  and  he  can  crowd  up 
the  value  of  his  service  towards  10,  according  to  the 
intensity  of  my  desire.     Of  course  he  cannot  crowd 
it  over  10,  but  the  limit  below  that  will  now  be  de-  ^^'^^  u^^ 
termined  by  the  relative  strength  of  my  desire.     On^^^*^  * 
the  other  hand,  if  my  desire  be  as  before,  and  the 
two  efforts  as  before,  and  his  desire  for  my  return 
service  be  increased,  and  I  know  it,  and  I  the  only 
man  who  can  render  him  such  a  service,  I  can  crowd 
down  the  value  of  his  service  below  5,  according  to 
the    intensity  of    his    desire.     Of    course  I  cannot  J,    ».  ^ 
crowd  it  down  below  a  point,  which  we  will  call  3,  !j       ^ 
at  which,  rather  than  continue  his  service  at  that  ^        ^    i 
rate,  he  will  forego  the  exchange  altogether.      But 
value  may  vary  between  these  limits,  10  and  3,  ^Ou^^^^^ 
cording  to  the  varying  intensity  of  our  mutual  de-  i^v^^^  (u 
sires.     If  it  should  so  happen  that  both  these  desires, 
my  desire  for  his  service  and  his   desire  for  mine,  * 
should  increase  simultaneously  and  proportionably, 
value  would  not  be  affected  ;  the  exchange  would  go  ^^ 
on  at  the  same  rate  as  before.     Or  if  both  desires'^    7  ''t^^ 
should  diminish  simultaneously  and  proportionably, 
value  would  not  be  affected.     The  same  is  true  of   \        /^ 
efforts.      If  both  efforts  suddenly  become  twice  as 
onerous,  or  one  half  as  onerous  as  before,  the  de-  ^ 

sires  remaining  the  same,  the  value  of  the  two  ser- 
vices estimated  in  each  other  would  stand  just  as 
before.    Thus  we  see  that  the  natural  limits  of  value,  >(wv>CX  » 
and  all  the  variations  in  value,  are  to  be  sought  for  vt^-v-^-*^ 
and  will  be  found  in  the  play  and  interaction  of  the  -u-  •-*^^— 
four  elements  out  of  which  value  itself  springs,        'fr*'^^ 


'^^t.-t-vM-*^^^   Hi^,  ^  cM.^.v-vL^v>v^    V  aiy^^'r^V'^^  ^t-t 


*^/ 


96  ELEMENTS   OF  POLITICAL  ECONOMY. 

M^^sy^Jij^^^^      We  shall  now  be  able  to  understand  clearly  what 
reXwc  -  ^^  **^^  ^"^  universal  Law  of  Value,  —  a  law  applicable 

^  alike  to  all  three  classes  of  exchangeable  things,  and 

comprehending  perfectly  all  variations  in  all  values. 
'f''  ^7-  This  is  termed  the  Law  of  Demand  and  Supply. 

^^^ ;        Demand  is  the  Desire  of  purchasing'  something  coup- 
led with  the  Power  of  purchasing  it.     In  other  words, 
uZuu  c^*'*"^Qp[iand  is  the  desire  of  one  person  for  something 
'  ^'T^*^        from  the  hands  of  another,  who  also  desires  somc- 
'^.  thing  from  the  hands  of  the  first,  when  both   are 

u»w  willing  to  part  with  what  they  now  have  from  that 

motive.    Supply  is  any  exchangeable  thing  offered  for 
^   ?  sale  against  any  other  exchangeable  thing.     These 

definitions  are  stated  in  the  most  general  terms. 

Now,  as  Value  is  always  a  resultant  of  four  ele- 
ments, and  only  four,  all  changes  in  value  must  be 
'-  ^  t,.'v^-^due  to  change  in  one  or  more  of  these  elements  rela- 
VI 1*  u*<*.*i-  ,  tivel}^  to  the  others  ;  and  the  universal  Law,  which 
shall  account  for  the  existence  of  value,  and  for  its 
^Q^v^o  V,.   amount  at  both  extremes   and  at  all  intermediate 
X*  nL     *^7L'  points,  must  be  found  in  just  these  elements.     These 
elements  are  expressed  in  the  terms  Demand   and 
j^t  ,  Supply.     Market- Value  is  the  rate  at  which  services 

..^.iyfCU\f  py.  ^^  ^^1  sorts  are  exchanging  at  the  present  time  in  the 
various  departments  of  society.  What  determines 
that  rate?  What  determines  that  corn  is  now  selling 
f^  eJUX:^ -^*^.in  the  market  for  one  dollar  a  bushel  ?  Two  desires 
come  in  to  determine  it,  —  the  desire  of  people  for 
corn,  and  the  desire  of  farmers  for  money.  Two  ef- 
forts come  in  to  determine  it,  —  the  effort  of  farmers 
to  raise  and  bring  a  bushel  of  corn  to  market,  and 
the  effort  of  people  to  secure  one  dollar  in  money. 
1^/^  s.\X^       The   presence    of   corn  in  the  market,  or  its  being 


ON  VALUE.  97 

ready  to  be  immediately  brought  there  and  offered 
in  exchange  for  money,  constitutes  what  is  called  a 
Supply  of  corn ;  money  offered,  or  ready  to  be  of-j^    -^^  « 
fered,  in  exchange  for  corn,  constitutes  what  is  called  ^ 

a  Demand.      This  is  commercial  language,  and  is 
sufficiently    accurate,    although  it  must  be  remem- 
bered that  each  commodity  in  reality  constitutes  a 
Pemand  for  the  other,  and  is  a  Supply  in  reference  to 
the  other.     But,  speaking  commercially,  the  money 
ready  to  be  offered  for  commodities  is  the  Demand, 
and  the   commodities  ready  to   be   exchanged   for 
money  are  the  Supply.     What,  then,  is  the  law  of  J 
market-value  ?      The   law   of  market-value    is    the"^**^  %  , 
equation  of  supply  and  demand :  that  is  to  say,  the        ^ 
rate  of  the  exchange  is  adjusted  when  money  enough 
is  offered  to  take    off  within  the  usual  times  the 
commodities    on    hand.      Demand   and   supply  are 
thus  equalized,  and  the  current  market-rate  is  deter- 
mined.    If  demand  for  any  reason  becomes  quick- ^Y^eA-**- 
ened,  and  the  supply  not  increased,  there  is  compe-jWT-fto.-v 
tition  among  buyers  for  the  stock  in  market,  a.ndtf^  eu^tAi. 
market-value   tends  to   rise.      If  demand   becomes/^-w.*-*'^^ 
sluggish,   the  supply  remaining  the  same,    there  is^g /^  ^/t. 
competition  among  sellers  to  dispose  of  their  stock,  A^^^ 
and  market- value  tends  to  sink.      So  far  it  is  the 
action  on  value  of  the  element  of  desire,  which  ex- 
presses itself   through  demand.     How  far  can  this  , 
action  go  ?      Demand   being   increased,  supply  re-  f^^  f\^ 
maining  the  same,  value   rises :    how   far   does    it  ^'•^'  ^^ , 
rise?      In  the  ratio  of   the  increased  demand,  say^^^^^^JJ 
some ;    if  the  demand  be  one  third   increased,  the 
value  will  be  one  third  higher.     By  no  means  is  this             ^  ^ 
true.     The  value  may  rise  far  higher  than  that  pro*  ^"^^  '^  ^ 


98  ELEMENTS  OF  POLITICAL  ECONOMY. 

portion,  or  it  may  not  rise  in  anything  like  that  pro- 
itj  ^j^ji^^^  portion.     It  depends  upon  circumstances,  and  upon 
1r^        1^  the  nature  of   the  commodity.      We  must  remem- 
ti^^/  ber  that  demand  not  only  acts  upon  value,  but  value 
*jJL^-»  c«x  *         acts  upon  demand.     As  value  rises,  the  number  of 
tU^^^a.<v       those  whose  means  or  inclinations  enable  them  to 
^T^f^^^^^j,     purchase  at  the  new  rate  is  constantly  diminished. 
i^iiCyAXv  -     There  are  ten  persons  who  may  wish  an  article  at 
one  dollar,  of  whom  not  over  four  will  wish  it  at 
two  dollars,  and  perhaps  only  one  at  three  dollars. 
Every  rise  in  value  then,  under  the  influence  of  in- 
creased demand,  tends  to  cut  off  a  part  of  that  de- 
mand, that  is,  to  lessen  the  number  of  those  who 
will  purchase  at  the  increased  price ;  and  the  value 
will  rise  only  to  that  point,  whatever  it  be,  where  an 
equalization  takes  place  between  the  supply  and  de- 
mand, between  the  quantity  of   corn,  for  example, 
offered  at  the  enhanced  rates,  and  the  quantity  of 
money  in  the  hands  of  those  willing  to  exchange  it 
for  corn  at  the  enhanced  rates.     Thus  we  see  that 
every  rise  or  fall  of  demand,  and   the  consequent 

6^o.t^'(.,  iu ^^  rise  or  fall  of  value,  tends  to  check  itself.     An  in- 

ki^wo^  ,^^tw  creased  demand   for   any  article    or   service,    other 

things  being  equal,  enhances  its  value ;  but  the  en- 

^^^^  tx-i  vtiJlwi  hanced  value  in  turn  lessens  the  demand  by  lessen- 

j^^^^^^S.   ing  the  number  of  those  who  will  purchase,  and  the 

.    ^       new  market-rate  is  struck  at  the  point  of  equaliza- 

^t.X4j«.  ^^^^  between  the  old  supply  and  the  new  demand. 

Just  so,  if  demand  is  slackened,  value  declines;  but 

declining  value    in    turn   increases  the  demand  by 

bringing  the  article  within   the  range   of   a  larger 

,  number  of  purchasers,  and  the  decline  is  arrested  at 

„v.  ^^A'  ^^^  point  of  equalization  between  the  new  demand 


ON  VALUE.  99 

and  the  old  supply,  and  a  new  market-rate  is  deter- 
mined.     Everything  oscillates  under  the  variations 
of  demand,  but  the  point  of  stable  equilibrium,  if  I 
may  use  the  expression  of  anything  so  unstable  as  ''^'^'^ 
market-value,  the    point   of   stable    equilibrium  ianJ^ 
always  the  equation  of  supply  and  demand.  ♦'-r^S  ^ 

In  the  preceding  paragraph    we  have   supposed 
supply  to  remain  unchanged,  and  have  followed  the   ,,  - 

law  of   value    through    the  variations    of   demand,  J^  .•,    ^^ 
which,  money  being  invariable,  as  is  here  supposed,  ^  /-t-^/Jv 
expresses  the  element  of  desire.     Supply  expresses ^^^^^^w 
the  element  of  efforts,  and  market-value  varies  with 
the  variations  of  supply.     We  have  seen  that  every  ^  *-^'' 
rise  or  fall  of  demand  tends  to  check  itself,  and  willv^-'^^^^ 
check  itself  even  without  variations  in  the  supply ;  'H'f^  • 
but  it  is  commonly  checked  at  an  earlier  point  by 
variations  in  the  supply.     A  brisk  demand  enhances 
value,  and  enhanced  value  commonly  stimulates  sup- 
ply, and  increased  supply  checks  the  rise.     A  slack 
demand  lowers  value,  and  lowered  value  commonly 
lessens  the  supply  by  the  action  of  holders  and  spec- 
ulators, —  holders  withdrawing  their  stock  for  a  bet- 
ter market,  and  speculators    buying  now  when  the 
article  is  cheap,  to  store  away  till  it  shall  be  dearer. 
Thus  rise  of  value  from  increased  demand  is  doubly  ^^Z^^ 
checked ;  first,  by  restricting  the  number  of  purchas-^^,,^ 
ers,  and  second,  by  increasing  the  supply:   the  fall:*.,.  ^, 
of  value   from    slack   demand   is    doubly  checked ;  v  ,.a  ^^ 
first,   by  enlarging   the  number  of  consumers  of  »  '' 
now  cheaper  article,  and  second,  by  diminution  o' 
supply  by  the   action   of   holders   and   speculators. 
This  law  of  the  equalization  of  demand  and  supply, 
thus  doubly  and  harmoniously  working,  is  the  most  I'^^o^^t^ 


)VL  t 


t..»>v%. 


100  ELEMENTS  OF  POLITICAL  ECONOMY. 

comprehensive  and  beautiful  law  in  political  econ 
omy.     It  is  all-comprehensive.     Its  operation  in  the 
P^       field  of  personal  services  and  in  the  field  of  commer- 
-  /^^      ^h     gjg^l  claims,  though  perhaps  less  obvious  at  first,  is 
"V^'*^'^^       equally  certain  and  universal  as  its  operation  in  the 
^^^^  fielj  of  material  commodities.    But  we  must  note  the 

action  on  value  of  changes  in  supply  only,  demand 
■"  "  continuing  steady.  If  the  supply  be  short,  and  cannot 
be  increased  at  all,  as  is  the  case  with  choice  antiques 
and  certain  gems  and  paintings  by  the  old  masters, 
value  may  rise  to  any  point,  and  will  be  struck,  as 
before,  at  the  precise  point  of  equality  of  the  demand 
then  existing  with  the  supply  there  offered.  The 
French  government  paid,  in  1852,  615,300  francs  for  a 
painting  by  Murillo,  which  had  belonged  to  Marshal 
Soult.  The  genuine  Murillos  are  comparatively 
few,  and  their  number  cannot  be  increased,  and 
their  merit  causes  a  strong  desire  to  possess  them, 
. .  -1  J'  ^"^^  their  value  rises  in  consequence  of  the  limita- 
tion of  supply  to  a  point  beyond  which  no  one  pur- 
chaser can  be  found.  When  this  painting  was 
offered  in  Paris  for  sale,  many  parties  were  anxious 
to  purchase  it,  but  the  equation  of  demand  and  sup- 
i  ?  i  J*  -*  P^y  ^^^  reached,  and  its  value  was  determined  only 
when  one  party  distanced  all  other  competitors 
and  offered  a  sum  greater  than  any  one  else  would 
give.  There  was  one  painting ;  there  could  be  but 
one  purchaser;  value  rose  under  the  influence  of 
demand,  and  could  not  be  checked  by  increase  of 
supply ;  and  the  equation  was  complete  when  the 
demand  was  practically  restricted  to  one  party,  and 
that  the  highest  bidder.  The  same  principle  controls 
all  sales  of  this  sort. 


ON    VALUE.  101 

If  the  supply,  instead  of  being  absolutely  limited, 
can  only   be   increased  with:  di,iiciil>tv5  or  -^iter  the  , 
lapse  of  time,  similar  but  les^  extreme  results, will  be^^^H^  ^^ 
observed.     Suppose  piabo« '  &T»i  seJlin-g'  lii  Wrfy;  Odm->^^  "oi^ 
munity  at  $300  each,  and  there  are  twenty  persons"^  '^  ^'^ 
in  that  community  who  wish  a  piano  immediately  ^^ff)^*^  » 
and  that  there  are  but  fifteen  pianos  on  hand,  and  the 
number  cannot  be  increased  for  six  months.     The 
value  will  rise  above  $300.    How  much  above  ?    To         , 
that  point,  whatever,  it  be,  at  which  only  fifteen  of  i^**"^^-*"' 
the  twenty  will  be  willing  to  purchase  at  the  new^  **  />*'*-^ 
rate.     The  equation  of  supply  and  demand  will  be  *  ,     ^ 
reached  by  a  rising  value  which  cuts  off  five  com-^  j'^^^ 
petitors      This  is  the  principle,  working  only  roughly 
indeed  in  practice,  —  working  only  by  the  estimates 
and  good  judgment  of  dealers,  —  but  the  principl^'^*^*'^  ^ 
is  this.     A  better  illustration  of  this  class  of  cases  is^'^'^^^t*^ 
perhaps,  the  grains  and  other  products  of  the  earth.  (J 
When  these  have  been  gathered  there  is  no  more 
home    supply    for   a  year.      Any  deficiency   in  the 
crops  will  raise  their  value,  not  at  all  in  the  ratio  of  ^^i^^^  ji^ 
the  deficiency,  but  according  to  the  relations  of  the       ^^^^a^i 
diminished  supply  to  a  new  demand.      It  will  de-' 
pend  on  the  facility  of  importation,  and  other  causes, 
but  it  has  frequently  happened  that  an  estimated  de- 
ficiency of  crops  amounting  to  one  third  has  doubled  .^^^'^<'«^^ 
and  even  quadrupled  the  usual  prices.^  ic  hlAtit 

In  the  only  remaining,  and  far  more  numerous 
class  of  cases,  in  which  the  supply  of  commodities 
and  services  can  be  readily  and  indefinitely  increased, 
every  rise  and  fall  of  value  is  speedily  checked  by  ^ 
the  action  of   supply ;    and  the  comprehensive  and 

1  Tooke's  History  of  Prices.     Quoted  by  J.  S.  MilL 


102  ELEMENTS  OF  POLITICAL  ECONOMY. 

harmonious   law  already  referred  to  keeps  value  in 
this  cia^s  of  caafirsx^:)mpajatively  steady. 

The  general  theory  of  value  has  now  been  given. 
While  w^e.  sii^l  fiqd  no  case  of  value,  or  its  varia- 
tions, which  this  theory  does  not  cover  and  explain, 
we  shall  find  particular  principles  which  act  in  cer- 
tain cases  upon  demand  and  supply,  and  thereby  act 
upon  value.  We  have  now  seen  what  value  is ;  how 
it  arises ;  the  elements  which  alone  can  vary  it ;  and 
the  universal  law  which  limits  it. 


0]!f  EXCHANGE.  103 


CHAPTER   IV. 

ON  EXCHANGE. 

The    strength   and  safety  of  our  conclusions  in 
Political  Economy  are  derived  from  the  simplicity 
and  certainty  of  the  forces  at  work.     No  man  has 
ever  denied  the  great  facts  that  lie  at  the  basis  of 
exchange.     That  men  are  possessed  of  desires,  that  {  ^^^  v 
efforts  are  necessary  in  order  to  meet  these,  and  that-j  %^  ' 
satisfactions  are  the  result,  are  propositions  univer-  1<^'*^^W^ 
sally  admitted.     From  these  simple  truths  spring  all 
the  laws  of  our  science.       Efforts  are  exchangeable. 
One  man  may  and  does  put  forth  the  effort  neces-  Ois  m 
sary  for  the   satisfaction   of  another  man's   desire.  ^;ct;^'^ 
But  since  the  effort  is  not  for  himself  but  for  another, 
and  since  to  put  forth  efforts  is  not  naturally  agreea-  oy 
ble  to  man,  and  never  becomes  so,  except  in  con-  T^ 
nection  with  the  satisfaction  to  which  they  minister, ^^^17^ 
he  Tyill  demand  for   his   effort  some  corresponding     '    ^ 
effort  made  for   him.     This  is   a  simple  fact.     No^^''^''"^  ^ 
man  will  work  for  another  for  nothing.     But  he  will  f'^^^^ 
work  with   alacrity  and   persistency  in  view  of  a 
suitable  reward. 


t<v/    C<<M«v-v^ 


104  ELEMENTS  OF  POLITICAL  ECONOMY. 

How  now  does  it  happen  that  society  is  one  vast 
hive  of  buyers  and  sellers,  every  man  bringing  some- 
thing to  the  market  and  carrying  something  off?  We 
g  speak  of  the  commercial  classes,  but  all  classes  are 

^^'*^'^      commercial.     Everybody  exchanges.     You  do  some- 
/^*^"         thing  for  me,  and  I  will  do  something  for  you,  is  the 
tr^^'        fundamental  law  of  society.     From  this  results  the 
"^i  '  division  of  employments,  and  all  the  various  profes- 

sions. Every  man  brings  his  own  product  and  ex- 
changes with  society  as  best  he  may.  The  farmer 
brings  his  produce  —  and  exchanges.  The  mechanic 
brings  the  product  of  his  skilled  labor  —  and  ex- 
changes. The  laborer  brings  his  strength,  and  the 
teacher  his  knowledge,  and  they  are  ready  to  do  ser- 
vice—  for  a  consideration.  The  merchant,  the  phy- 
sician, the  lawyer,  the  clergyman,  the  editor,  the 
lecturer,  the  singer,  the  actor,  and  so  on  to  the  end 
of  the  list,  are  ail  in  position  to  render  services  to 
society,  and  justly  expect  to  receive  an  equivalent 
service  in  return.  Indeed,  when  we  look  out  upon 
society,  the  most  striking  thing  we  observe  about  it 
is,  that  these  exchanges  are  going  on,  in  a  thousand 
directions  at  once,  determining  all  employment  and 
professions,  reaching  everywhere  and  permeating 
everything,  and  all  this  the  more  rapidly  and  per- 
fectly as  knowledge  and  civilization  advance.  Since, 
therefore,  as  a  matter  of  fact,  men  do  constantly  put 
forth  onerous  efforts  to  satisfy  other  men's  desires, 
in  order  to  receive  back  from  them  the  results  of-  cor- 
responding efforts  in  return ;  since  this  mutual  ex- 
change of  services  is  everywhere  present  in  society, 
not  in  the  market-places  only,  but  in  every  depart- 
ment of  life,  there  must  be  in  this  exchange  some 


ON  EXCHANGE.  105 

great  gain.     We  now  inquire  particularly  what  this 

gain  is.     What  is  the  motive  that  leads  men  univer- 1^^*^  '  "^ 

sally  to  exchange  ? 

The  answer  to  these  questions  will  bring  us  to  the 
gratifying  conclusion  that  the  laws  of  exchange  are  n     -     ~ 
based  on  nothing  less  solid  than  the  will  of  God.   .n^}i^ 
The  desires  of  men  are  not  only  various  in  kind  and  h^^^^ 
indefinite  in   degree,  but  also   tend  to  increase  i^^p^^-ixU^i 
variety  and  extent  by  the  progress  of  knowledge  and  ^.^i^cv  L»v, 
freedom.     To  the  gratification  of  almost  all  these/^rvo  "?     ' 
desires,  however,  there  are  obstacles  interposed,  some 
of  which  are  physical  and  some  moral ;  and  these       ^  , 
obstacles  are  so  great  in  all  directions,  that  the  pow-T^T^^ 
ers  of  the  individual  man  are  utterly  incompetent  tO/Vu^^xi!j 
surmount  them.     They  mock  at  his  weakness,  andK*i^.;C 
throv/   him   back   upon    his   destitution.      Without  r*^'?**f 
association  with  his  fellow-men,  there  is  no  creature  . 
so  helpless,  so  unable  to   reach  his  true  end,  as  ^^.,rJ^~'  • 
man ;  and  therefore  it  is,  that  the  impulse  to  associ*  ^^-^ 
ation  is  one  of  the  strongest  of  our  natural  impulseSi//0*^" 
Men  come  together,  as  it  were  by  instinct,  into  soci-^^^^--^ 
ety ;  and,  associating  themselves  together  in  a  soci-  * 

ety,  it  is  very  soon  discovered,  not  only  that  there J/i^Jv^vv;  j 
are  various  desires  in  the  diffisrent  members  of  the 
community  which  are  now  readily  met  by  coopera-^/^^.^^ 
tion  and  mutual  exchange,  but  also  that  there  are"fe,^^.».y,5vJ 
very  different  powers  in  the  different  individuals  in^-ei^,^^    , 
relation   to   those   obstacles  which    are   to   be  sur-clco* 
mounted.     There  is  a  vast  diversity  in  natural  gifts. 
One  man  has  physical  strength,  with  no  mechanicai 
ingenuity ;  another  combines  with  a  feeble  body  a 
wonderful   knack   for    contrivance ;   a   third   has    a 
philosophical  turn,  liking  to  examine  into  the  lawa 


106  ELEMENTS  OF  POLITICAL  ECONOMY. 

of  nature ;  and  a  fourth  has  a  bent  and  genius  for 

traffic.     Now,  then,  Nature  speaks  in  this  diversity 

of  gifts  in  as  loud  a  voice  as  she  can  utter,  in  favor 

_,        of  such  a  degree  of  association  and  exchange  as  shall 

^^^  allow  a  free  development  of  these  varying  capacities, 


*\,%/^y^^■,^^.4  ( 


^■^^  while  they  work  upon  the  obstacles  to  the  gratifica- 
^MlftX*"'  tion  of  men's  wants  which  are  appropriately  oppo- 
^x^  ;  site  to  them.    Mr.  Carey  is  right  in  his  principle  that 

i^f^lxi^K  O  *^®  degree  of  individuality  depends  on  the  degree  of 
Atkv.l-  cu^*  association,  each  advancing  hand  in  hand  with  the 
a^«ma^n  -  other;  but  he  seems  to  me  to  be  wrong  while  he 
jv_^  lacks  confidence  in  the  natural  forces  at  work  tending 

'"      to  the  highest  degree  of  association  and  consequently 
to  the  highest  degree  of  individuality.     There  is  no 
.,h     ^     social  force  stronger  than  interest,  and   interest  is 
driving  society  continually  to  exchange,  and  to  a 
yeii.fV'VA  1      wider  and  wider  application  of  the  principles  of  ex- 
^  o^do^tA  -  change,  that  is  to  say,  to  a  higher  and  higher  degree 
u  aW>  7i^    of  association,  which  allows  of  course  a  continually 
^vWuwv  %  freer  development  of  individuality.     When  interest 
!^^>^j^      fails  as  a  motive  power,  at  least  in  this  department, 
^     it  is  vain  to  appeal  to  or  to  trust  an  inferior  and  fac- 
titious motive  power. 

It  is  interest  that  leads  men  to  exchange.     It  is 
^j^  i^      because  a  given  effort  put  forth  for  another,  in  view 
of  a  return,  realizes  more  of  satisfaction  than  when 
put  forth  directly  for  one's  self,  that  exchange  ever 
takes  place.     Why  does  it  realize  more  ?     Because 

THERE     IS    DIVERSITY    OF    ADVANTAGE     BETWEEN     DIF- 
FERENT   MEN     AND    BETWEEN    DIFFERENT    NATIONS,    IN 

DiFr"5RENT    RESPECTS.      All   exchange    depends   on 
diversity  of  relative  advantage;  and  diversity  of  rela- 
-\^ln\u^.^^^  advantage  exists  by  God's  appointment  among 


lA.^. 


ON  EXCHANGE.  107 

individual  men,  and  among  the  nations.     Reserving 
this  national  diversity  for  a  later  discussion,  it  is 
very  clear  that  a  diversity  of  advantage  in  different 
things  displays  itself  as  between  the  individuals  of 
every  community   large  and    small.      There   is   no  /,         "^ 
village  in  which  one  man  has  not  an  advantage  over 
his  neighbors  in  the  making  of  coats,  another  in  the 
shoeing  of  horses,  another  in  the  curing  diseases, 
another  in  the  keeping  a  school ;  while  each  of  those 
neighbors  may  have  an  advantage  over  each  of  these 
in  some  other  art  or  avocation.     This  diversity  of  ^  nJ^^ 
advantage  in  various  directions  depends,  in   every ^j^iW^^ 
advanced  state  of  society,  partly  upon  diversity  of 
original  gifts,  partly  upon  concentration  of  personal 
effort  upon  the  one  set  of  obstacles  that  lie  in  the 
path  of  a  single  branch  of  business,  and  partly  upon 
the  use,  and  familiarity  in  the  use,  of  the  gratuitous 
forces  of  nature  which  lend  their  ajd  towards  over- 
coming these  obstacles.     As  the  result  of  one  or  two 
or  all  of  these,  one  man  comes  to  have  a  legitimate 
advantage  over  others  in  his  own  branch  of  business,    . 
whatever  it  is ;  and  the  others  come  to  have  a  legiti-"'^^^^^'^^-^ 
mate  advantage  over  him  in  their  own  branches  of^^^j^i^r^-^ 
business,  whatever  they  are ;  and  if  he  has  desires '''**-^*^  ^ 
which  their  efforts  can  satisfy,  and  they  desires  which '^^^'^  ^  ^ 
his  efforts  can  satisfy,  nothing  more  is  necessary  to**^*^*^ 
a  profitable  exchange  between  them  than  this  rela-         ^*^ 
tive  advantage  at  different  points.     The  tailor  and 
blacksmith  can  profitably  exchange  their  respective  cLu-*  **^ 
efforts  just  as  soon  as  each  has  a  relative  superiority ^ttk-c  u*^ 
to  the  other  in  his  own  trade,  provided  of  course  each  d^#-».^v«^4» 
has  a  desire  for  the  product  of  the  other ;  and  the<j^E— -  /t*- 
greater  the  relative  superiority  of  each  to  the  other, 


108  ELEMENTS  OF  POLITICAL  ECONOMY. 

the  more  profitable  is  the  exchange  to  both.     This  is 
a  point  of  considerable  consequence,  and  will  repay 
some    pains   in  illustration.     If  the  blacksmith  can 
shoe  horses  only  a  little  better  than  the  tailor  could 
shoe  them,  and  the  tailor  make  coats  only  a  little 
better  than  the  blacksmith  could  make  them,  there 
will  be  only  a  slight  advantage  in  their  mutually  ex- 
^c^ix  M-,  changing  efforts.     For  the  sake  of  definiteness,  let  us 
r^l(lLiv\>'    say,  that  the  tailor's  capacity  in  making  coats  is  6, 
*jt  and  his  capacity  in  shoeing^  horses  is  5 ;  and  the 

blacksmith's  capacity  in  shoeing  horses  is  6,  and  his 
capacity  in  making  coats  is  5.     Each  has  a  relative 
superiority  to  the  other  of  1,  and  if  they  exchange, 
there  is  an  advantage  of  2  to  be  divided  between 
them.     Now  let  us  suppose  that  each,  by  exclusive 
devotion  to  his  own  trade,  by  developing  his  latent 
,uMy^.^x^v    skill  and  ingenuity,  and  by  availing  himself  of  all  the 
^     el.  ^  rr  forces  of  nature  at  his  command,  comes  to  have  a 
'  •  capacity  in  his  own  business  of  15,  his  capacity  in 

the  other  business  remaining  as  before  at  5.  Each 
now  has  a  relative  superiority  to  the  other  of  10,  and 
when  they  exchange  there  is  an  advantage  of  20  to 
be  divided  between  them.  The  motive  to  an  ex- 
change, and  the  gain  of  an  exchange,  are  ten  times 
greater  than  they  were  before.  Therefore  we  lay 
down  the  principle,  as  universally  applicable  to  all 
exchanges,  that  the  greater  the  relative  superiority 
at  different  points,  the  more  profitable  do  exchanges 
become.  If  this  principle  is  just,  and  I  flatter  myself 
I  that  it  will  be  found  to  be  just,  it  follows,  that  every 

.     ,        man  who  has  anything  to  exchange,  is  directly  inter- 
Jpi  r^  ^/     ested  in  the  success  of  his  fellow-citizens,  that  every 
trade  finds  its  advantage  in  the  increasing  develop- 


ON  EXCHANGE.  109 

meiit  of  other  trades,  and  that  all  discoveries  and  J^v-*^ 
inventions  by  which  Nature  is  made  to  pay  tribute  i5<<M^jt. 
to  any  art  is,  restrictions  apart,  so  much  clear  gain  ^  /^ 
to  the  world  at  large.  In  the  light  of  sound  princi-  ^jjUv^w^ 
pies,  what  has  been  sometimes  called  the  jealousy^  <:«&2.*^ 
trade  is  simply  silly. 

All  exchange,  then,  depends  on  difference  of  rela-  ^  <  ^ 
live  advantage,  because  without  some  difference  of  ^Hv^^ 
relative  advantage,  each  party  could  serve  himself  '^osttnJ 
directly  just  as  well   as  he  could  be  served  by  the  j-^vh^Jv^ 
other  party,  and  there  would  be  no  motive  at  all  foriyv^i^  1 
an  exchange.     As  soon  as  there  is  any  difference  of 
relative  advantage,  there  begins  to  be  a  motive  for  an\|yyXvi^  ^ 
exchange,  and  a  gain  as  the  result;  and  the  motive  ^,^^^j;(^ 
and  the  gain  become  stronger  and  greater  as  the  dif-  w:y«tww 
ference  increases  ;  so  that  the  gains  of  exchange  are  •AfJ^'^ 
the  greatest  in   that  state  of  society  in  which  the     ' 
freest  opportunity  is   allowed  to  every  individual  to  \}Lx^.  c 
employ  his  peculiar  powers  in  work  for  which  he  is 
best  fitted,  in  which  desires  are   so  various  and  em-\^jujuw  on 
ployments  so  diversified   as   to  give  a  chance  for  all  miho  «^ 
kinds  of  efforts,  and  in  which   men  avail  themselves         ' 
to  the  utmost  of  those  natural  advantages  and  gra- 
tuitous  powers  which   lie   open  to    their    disposal. 
Freedom,  association,  and  invention,  are  the  three 
things  which  make  exchanges  as  profitable  as  they 
can  become,  and  which  will  carry  society,  so  far  as 
exchanges  can  do  it,  to  the  highest  pitch  of  prosper- 
ity.    Of  these  by  far  the  most  important  is  freedom, ^/vjtcW 
because,  where  freedom  is  conceded,  association  andofVv<rvJ^  ^ 
invention  follow  in  time  bylaws  of  natural  sequence.  t'*'v>Vx 
By  freedom  is  meant  the  right  of  every  man  to  em-  'vvi^  *, 
ploy  his  own  efforts  for  the  gratification  of  his  ownLtK^^j 


110 


ELEMENTS  OF  POLITICAL  ECONOMY. 


1.  Orvvtx.    '•  • 


Pc^^j^  U 


wants,  either  directly  or  through  exchange.  Each 
man's  right  of  freedom  is  limited  of  course  by  every 
other  man's  right  of  freedom  which  he  is  not  at  lib- 
erty to  infringe;  and  also,  in  certain  respects,  by  what 
is  called  the  general  good,  of  which  the  judge  must 
be  the  government  under  which  he  lives.  Under 
these  limitations,  which  limit  in  common  all  other 
rights,  the  right  of  exchange  is  just  as  much  of  a 
right  as  the  right  of  breathing.  It  stands  on  the 
same  unassailable  ground.  Every  man  has  a  nat- 
ural, self  evident,  and  inalienable  right  to  put  forth 
efforts  for  his  own  well-being ;  and  whenever  two 
men  find  that  by  exchanging  efforts  with  each  other, 
they  can  better  promote  their  own  happiness,  they 
have  an  indisputable  right,  subject  only  to  the  above 
limitations,  to  exchange ;  and  it  is  a  high-handed  in- 
fringement of  natural  rights,  a  blow  aimed  at  the 
life  and  source  of  property,  when  any  authority 
whatever  interferes  to  restrict  or  prohibit  the  free- 
dom of  exchange,  except  that  act  be  justified  by  a 
solid  proof  that  other  private  or  public  rights  which 
are  as  well  based  as  the  right  of  exchange  are  in- 
fringed thereby. 

Happily,  since  governments  have  become  more 
enlightened  than  formerly,  they  perceive  for  the  most 
part  that  they  have  no  right  to  interfere  with  this  nat- 
ural right  of  their  people,  and  also,  that,  by  interfer- 
ing with  it,  they  would  do  them  an  incalculable  in- 
jury. The  only  motive  to  a  mutual  exchange  of 
services,  is  always  and  everywhere  the  mutual  benefit 
of  the  parties.  After  every  fair  exchange,  each  party 
is  richer  than  before,  has  more  satisfactions,  otherwise 
there  would  be  no  exchange.     I  esteem  the  service 


ON  EXCHANGE.  Ill 

I  receive  more  highly  than  the  service  I  render,  otli- 
erwise  I  should  not  render  it.     The  man  to  whom  I 
render  it  esteems  that  service  more  highly  than  the 
service  he  renders  to  me.      We  are  both  gainers. 
And   since  almo*st  everybody  in  every  community 
has  something  to  exchange, —  either  service  or  com- 
modity, and  nobody  exchanges  except  in  view  of  a  ^  .  ^    I 
gain,  it  is  clear  that  free  exchange  benefits  every-         ,  ^ 
body,  and  harms  nobody.    Moreover,  under  a  system 
of  free  exchange,  every  man  is  allowed,  under  the ;_    .._ 
stimulus  of  self  interest,  to  follow  the  bent  of  his 
own  mind,  to  work  away  at  those  obstacles  to  the 
gratification  of  human  desires  which  he  feels  him- 
self best  able  to  overcome,  and  to  avail  himself  of  ^ 
all  those  helps  in  his  work,  of  which  Nature  offers  to  "^ 
him  a  full  store.     Under  these  circumstances,  obsta- 
cles give  way  in  all  directions :  the  arnount  of  mate-  . 
rial  products  produced  and  offered  for  exchange  is     ' 
vastly   augmented;    the    number   and    variety   and    :.^ 
excellence  of   the  services   proffered  is   indefinitely 
increased ;  the  diversified  and  rapidly  increasing  de- 
sires in  such  a  community  are  readily  met  by  ex- 
change ;  all  peculiar  facilities  are  taken  advantage  of, 
and  the  difference  of    relative  advantage  becomes 
great  in  all  directions,  and  a  new  day  of  industrial 
and   commercial  prosperity  is  ushered   in.      Under  f(i^i-s|^ 
freedom  all  men  have  the  greatest  possible  moiiye  -r^^Zc^ 
to  produce,  because  they  can  dispose  of  their  efforts  -.-U^ 
to   the   best   advantage.      They  can  purchase  with  ^.^^ 
these  efforts  what  they  will,  and  when  they  will,  and     ^ 
where  they  will.     Thus  freedom  leads  to  extended  i 
association,  and,  speedily  also,  to  the  invention  of 
machinery  and  all  labor-saving  appliances.     There-f-^*^^ 


112  ELKMENTS  OF  FOUTICAL  ECONOMY. 

fore,  since  free  exchange  indefinitely  multiplies,  in 
number  and  variety,  the  services  which  men  may 
render  to  each  other;  since,  by  means  of  it,  men's 
satisfactions  bear  a  larger  and  larger  proportion  to 
their  eftbrts ;  and  since  the  only  'possible  motive 
"^  to  an  exchange  is  a  mutual  benefit  of  the  parties, 
no  reason  can  be  given,  no  good  reason  ever  has 
been  given,  why  exchanges  should  not  be  the  fireest 
possible. 

After  long  centuries  of  meddlesome  and  vexations 
interference  with  the  freedom  of  industry  and  the 
rights  of  exchange,  by  limiting  the  number  of  ap- 
prentices to  each  artisan,  by  dictating  what  shonld 
and  what  should  not  be  manufactured  or  grown,  by 
attempting  to  determine  what  should  and  what 
should  not  be  imported  and  exported,  and  by  arbi« 
trary* burdens  on  certain  classes,  and  arbitrary  privi* 
leges  granted  to  others,  the  more  enlightened  nations 
of  the  world  have  come  at  length  to  perceive  that 
wealth  and  power  and  progress  are  dependent  on 
free  exchange,  at  least  within  their  own  boundaries. 
Common  sense  reigns  now,  for  the  most  part,  in  this 
thing,  within  the  limits  of  the  individual  nations. 
When  Bonaparte  brought  half  of  Western  Europe 
under  French  dominion,  the  previously  existing  ous* 
tom-houses  and  toll  barriers  of  the  interior  fell  as  by 
a  stroke,  and  free  trade  became  the  rule  between 
French,  Dutch,  Germans,  Italians,  and  Spaniards, — 
all  who  were  subject  to  his  sway.  But  when  his 
vast  empire  was  dissolved  into  its  original  independ- 
ent kingdoms,  up  shot  the  custom-houses  again, 
around  all  the  petty  frontiers,  and  each  State  was 


,    Oir  IXOMAVQ^  1X8 

buiy  to  reimpose  on  it«elf  tb@  fetters  which  his 
powerful  hand  bad  broken*^  Just  at  if  the  bene- 
fits of  exchange  depended  on  the  accident  that  the 
pardei  to  it  are  enlsjecte  or  dozens  of  the  same  gov* 
ernment  I 

Opposed  to  i&ee  exchange  are  monopolies*    A  ii^^^^JLaL 
monopoly  is  a  legal  restricdon  imposed  by  the  gov- 
ernment upon  the  sale  of  certain  services  or  commodi^ 
ties*    This  restriction  is  ostensibly  laid  for  the  bene-  i^  ^^ 
fit  of  certain  persons  or  classes,  and  limits  of  course  ^  ^ 
the  competition  to  which  they  wotdd  otherwise  be  ^^^^_. 
subject  in  their  business,  and  tends  therefore  arti« 
ficially  to  raise  the  value  of  that  which  the  privi-  Ji^^ 
leged  fewo^  for  sale*    U  the  view  be  limited  to,^^^^^ 
these   persons  alone,  monopolies  would   certainly 
seem  to  be  advantageous,  but  what  of  the  purcha-  a 
sers  and  consumers  of  their  wares  ?     They  all  are  i 
obliged  to  pay  a  higher  price  for  what,  were  it  not^'*'^^ 
for  the  monopoly,  they  could  obtain  at  a  cheaper'^'^^ 
rate,  since  the  only  object  in  laying  the  restriction,  is 
to  enhance  the  price  for  the  benefit  of  those  possess- 
ing the  privilege.    Monopolies,  therefore,  infringe  the  ^>^^.^<^^ 
right  of  exchange,  are  unjust  and  odious  in  their  ivWi  \ 
nature,  and  are  in  practice  abominable*     Nearly  all^^^   _ 
governments  have  been  chargeable,  at  times,  with      ^'  ^" 
successful  attempts  to  make  things  thus  artificially 
deaf  to  the  mass  of  the  people*    Q,ueen  Elizabeth 
called  the  power  of  granting  patents  of  monopoly  to       "" 
her  favorites  ^  the  fairest  fiower  of  her  garden*'^  To- 
wards the  close  of  her  reign,  her  abuse  of  this  power 
had  reached  an  intolerable  height,  and  some  of  the 
most  necessary  articles  of  life,  such  as  salt,  iron, 

»S«itor,   F«f«H7. 


*^*b 


114  ELEMENTS   OP   POLITICAL   ECONOMY. 

3alf-skins,   vinegar,   lead,  paper,  and    many  others, 
were  in  the  hands  of  patentees,  and  could  only  be 
procured  at  exorbitant  prices.     In  1601,  the  House 
.Ul^t/j^vcwV  of  Commons  met  in  so  angry  and  menacing  a  mood, 
*^pS  of  i^in  consequence  of  this  abuse,  that   Elizabeth  was 
^^  ,  obliged  to  promise  at  least,  that  the  monopolies  com- 

plained of  should  be  abolished.     The  famous  Act 
)f  Parliament  of  1624  declares  that  all  monopolies, 
•       grants,  letters  patent  for  the  sole  buying,  selling,  and 
making  of  goods  and  manufactures,  shall  be  null  and 
void.     This   Act  effectually  secured  the  freedom  of 
rA^^.- ..        industry  in  England ;  and  in  the  opinion  of  excellent 
authorities,  has  done  more  to  excite  the  spirit  of  in- 
^^^k4>^yi .       vention  and  industry,  and  to  accelerate  the  progress 
.      ,  of  wealth   in  that  country,  than  any  other  in  the 

V^^^  *^  statute  book.  The  Act  excepts,  however,  patents 
**|»^^*^^'  for  fourteen  years  to  the  true  and  first  inventors  of 
new  manufactures  within  the  realm,  and  also  the 
ccuf^^*-'  grants  by  Act  of  Parliament  to  any  company,  for 
the  enlargement  of  foreign  trade.  Under  this  excep- 
tion, the  East  India  Company  possessed,  up  to  1834, 
the  exclusive  right  to  vend  tea  in  England.  During 
the  last  years  of  this  monopoly,  and  notwithstanding 
«l  .. .,  the  quantities  of  tea  smuggled  into  the  country,  the 
Z  Vv^Vc  people  of  England  paid  more  than  $7,500,000  a  year 
for  their  tea  beyond  the  price  at  which  tea  of  equal 
quality  was  sold,  under  a  system  of  free  competition, 
in  Hamburg  and  New  York.  Opium  is  still,  for 
purposes  of  revenue,  a  government  monopoly  in 
British  India.  In  France,  tobacco  is  a  close  mo- 
nopoly in  the  hands  of  government  for  revenue  pur- 
poses. It  is  noticeable  that  monopolies  never  real- 
•jje  to  their  possessors  the  full  pecuniary  advantage 


t 


ON  EXCHANGE.  115 

of  which   the   public   are   robbed   by   their   action.  ^ 

Thus,  while  Englishmen  paid  $7,500,000  extra  an-    y.mX 
Dually  for   their   tea,  the  Company,  by   their   own.>j^vi;i 
showing,  did  not  realize  much  more  than  half  that  L^ 
sum   from   their   privilege ;  owing  to  the  inertness  ^ 

of  their  servants  removed  from  the  stimulus  of  com- 
petition. *'  The  spirit  of  monopolists,"  says  Gibbon, 
"  is  narrow,  lazy,  and  oppressive.  Their  work  is  more 
costly  and  less  productive  than  that  of  independent 
artists  ;  and  the  new  improvements,  so  eagerly 
grasped  by  the  competition  of  freedom,  are  admitted 
by  them  with  slow  and  sullen  reluctance." 

A  second  form  of  monopoly  is  that  in  which  gov-  l^c^^ 
ernments  by  restrictive  duties  try  to  exclude  foreign  ^^ 

competition  in  certain  articles,  leaving  the  domestic 
dealers  open  only  to    home  competition.     This    is 
done  in  connection  with,  sometimes  under  color  of, 
levying  duties  for  revenue.     Duties  laid  for  this  pur-  H^*--   , 
pose,  however,  as  we  shall  see  more  fully  hereafter^^^^^y^,,^ 
are  very  different  in  principle,  amount,  and   action,  ,^ 

from  those  properly  laid  for  revenue.  They  violate 
a  natural  right  of  exchange,  as  the  others  do  not, 
and  are  always  followed  by  injurious  consequences. 
Sometimes  the  hope  of  unusual  gains  from  pro- 
ducing an  article  whose  foreign  supply  is  thus  re- 
stricted, seduces  capital  and  labor  from  other  prof- 
itable channels  and  concentrates  them  upon  this 
business ;  and  the  home  competition,  thus  artificially 
stimulated,  becomes  intense  and  feverish,  the  busi- 
ness is  overdone,  an  element  of  distrust  and  unstead- 
iness is  introduced,  the  weaker  houses  are  ruined, 
and  only  the  stancher  firms  tide  over  the  depres- 
sion consequent   upon    overdoing,  and  control  the 


116  ELEMENTS  OF  POLITICAL   ECONOMY. 

market  for  a  while  at  a  monopoly  price.  But  the 
losses  of  home  competitors ;  the  losses  of  those  who 
would  otherwise  have  been  foreign  competitors  ; 
and  especially  the  losses  of  those  home  producers 
who  would  have  exchanged  products  with  those 
foreign  competitors,  overbalance  many  fold  these 
gains.  Sometimes,  again,  home  competition  is  even 
less  active  after  the  imposition  of  such  duties ;  and 
then  the  manufacturers  and  dealers,  relieved,  in  great 
measure,  from  the  stimulus  of  competition,  are  less 
on  the  alert  for  improvements,  less  attentive  to  the 
quality  of  their  goods,  less  compliant  to  their  cus- 
tomers ;  and  the  consumers  are  obliged,  not  only  to 
pay  a  tax  levied  for  the  benefit  of  the  monopolists, 
but  also  an  additional  tax  on  account  of  their  want 
of  enterprise  and  spirit. 

^^^^  Very  different  is  the  third  form  of  monopoly,  that 
involved  in  the  granting  of  patent-rights  and  copy- 
rights.    Society  does    well    in    protecting,  by   law, 

lUo  -  inventors  and  thinkers  in  the  sole  use  of  their  re- 
spective productions  for  a  limited  time.  Otherwise, 
men  would  have  less  motive  to  think  and  to  invent ; 
since  in  that  case  only  the  public-spirited  and  the 
rich  would  or  could  devote  themselves  to  an  impor- 
tant branch  of  the  public  progress.  A  patent  or 
copyright  is  merely  a  return  service  which  society 
renders  for  a  service  received.  It  violates  no  man's 
right  of  property,  as  an  ordinary  monopoly  does,  but 
is  a  provision  to  protect  a  right  of  property.  In 
the  United  States  a  patent  lasts  for  seventeen  years, 
and  is  not  reissued.  A  copyright  lasts  for  twenty- 
eight  years,  and  may  be  renewed  by  the  author,  his 
widow,  or  children,  for  fourteen  years  longer. 


ON  EXCHANGE.  117 

The  great  struggles  of  mankind  in  all  history  past 
have  been  around  three  points  as  centres:  first,  free-"^^fa^* 
dom  of  person;  second,  freedom  of  opinion;  third, lr-«-vv^ 
freedom  of  exchange.     In  consequence  of  the  strug-/c^^vMl« 
gle  around  the  first  point,  personal  slavery  has  now 
mainly  disappeared  from  the  earth  ;  in  consequence ^2*'**' 
of  the  struggle  around  the  second  point,  the  freedom^-^v*^^ 
of  opinion,  and  especially  of  religious  opinion,  has 
gained  great  victories   in  all  lands,  although   much 
remains  to  be  done  before  its  complete  triumph  is  as- 
sured ;  while,  in  consequence  of  the  struggle  around 
the  third  point,  one  barrier  after  another  has  been 
thrown  down,  one  monopoly  after  another  has  been 
conquered,  until  it  is  pretty  generally  acknowledged 
at  present  that  freedom  of  exchange  is  just  as  sacred 
as  freedom  of  person  and  of  opinion,  and  the  strug- 
gle will  certainly  never  cease  until  the  liberty  of 
contract  and  delivery,  subject  only  to  conditions  of 
morals,  health,  and  revenue    shall  be  international 
and  universal. 


•i-^^^t-t^- 


oji^^L^^  -f:*--^  **^/' 


,>^ 


rZ^I^-^  iiS/tU/'  ELEMENTS  OF  POLITICAL  ECONOMY.  Co-^HXa.  w^ 

cL  J^^J^ :  ^^  ^ ^—       CHAPTER  V.     .  -^"^  -^  ^^-^"^ ' 
a^^-z^  cu.^i^^  ^'--y^-  •  ^^:^'       ^ 

%t  o^^^jucJi^^  '[  oi  ^f^-^^^   '  M  ^"      ON  PRODUCTION,  tvw U ,  '^^♦-v^x^-^-Vj  . 
(fi^«vX\&:^'  '*■  •'  *"•"  ,       ,.  .         . 

V,  •  While  it  is  impossible  to  make  discussions  in 

Political  Economy  amusing,  it  is  also  impossible 
intelligently  to  conduct  them  without  constantly 
coming  to  conclusions  which  are  most  cheering. 
We  shall  find  a  gratifying  law  underlying  the  oper- 
ations of  production,  which  demonstrates  that  God 
designed  man  to  be  a  producer,  and  to  produce  un- 
der conditions  of  constantly  increasing  advantage. 
The  world  with  its  forces,  and  man  with  his  mo- 
tives, are  so  admirably  constructed,  that  these  condi- 
tions of  increasing  advantage  cannot  fail,  under 
freedom,  to  redound  to  the  benefit  of  the  masses  of 
men.  We  will  first  determine  what  production  is, 
and  then  the  cheering  law  that  underlies  it. 

Every  man  who  puts  forth  an  effort  to  satisfy  the 
desire  of  another,  with  the  expectation  of  a  return, 
is,  in  the  language  of  Political  Economy,  a  Pro- 
ducer. The  Latin  word  producere  means  to  expose 
anything'  to  sale.  Our  derived  word  to  produce  means 
the  same.  A  Product  is  anything  thus  exposed,  that 
is,  a  service  ready  to  be  rendered.  Adam  Smith,  who 
is  sometimes  called  the  father  of  this  science,  used 
these  terms  in  a  restricted  sense,  and  thereby  almost 
unfitted  them  to  do  their  proper  work.  He  confined 
production  to  the  occasioning  of  changes  in  material 


ON  PRODUCTION.  119 

objects.  He  gifted  with  the  title  of  producer  the 
farmer,  the  mechanic,  the  miner,  the  hunter,  and 
fisherman,  because  they  bring  to  the  market  a  ma- 
terial commodity ;  and  refused  the  honor  of  the  term 
to  those  who  render  simple  services,  however  essen- 
tial. This  is  wrong.  It  proceeds  from  an  inadequate  ^"^  ^^ 
analysis  of  value.  That  which  is  produced,  that  with 
which  we  have  to  do,  is  not  matter  but  value.  They 
who  originate  value  are  producers.  But  we  have  seen 
that  value  is  not  an  attribute  of  matter,  but  a  relation 
of  services.  The  service  may  be  employed  upon  mat- 
ter, may  be  embodied  in  it,  but  what  is  really  sold  is 
not  the  matter,  but  the  service ;  and  services  are  all 
the  time  being  sold,  as  those  of  the  singer,  the  teacher, 
the  clergyman,  which  have  no  connection  whatever 
with  matter.  These  services  have  purchasing-power, 
these  persons  originate  value,  and  therefore,  they  are 
producers.  Certainly,  in  an  inventory  of  all  values, 
a  certain  part  would  be  found  connected  with  ma- 
terial objects,  but  not  the  largest  part.  Our  lan- 
guage must  be  broad  enough  to  cover  all  the  cases. 
Therefore,  Production  is  the  rendering  of  any  service  ^l^j^^ 
for  which  something  is  demanded  in  return. 

Standing  over  against  Production  is  its  correlative/^^  ^^^^^ 
Consumption.  This  word  is  derived  from  the  Latin 
consumptio ;  and,  like  that  word  in  Latin,  has  two 
meanings  in  English ;  first,  wasting^  destroying,  or 
second,  using,  employing.  The  second  is  the  sole 
economical  sense  of  the  word,  although  many  writers 
have  not  escaped  the  taint  of  the  ambiguity.  While 
many  things  that  are  purchased  are  destroyed  as  to 
form  almost  immediately,  many  other  things  that 
are  purchased  are  not  thus  destroyed,  while  both 


Jrw 


120  ELEMENTS  OF  POLITICAL  ECONOMY. 

classes  alike  by  their  sale  are  economically  "con- 
sumed."    Mr.  Senior  proposed  as  an  improvement 

^vw^'f  (-J^-  in   nomenclature,  the    expression  "to  use"  instead 

SCoL<  of  the  expression  "to  consume."     But  the  words 

"to  consume,"  "consumer,"  and  "consumption,"  are 
too  strongly  intrenched  in  our  science  to  be  dis- 
lodged; corresponding  words  in  French  and  Italian, 
though  rather  derived  from  consummare  than  con- 
sumere^  are  used  economically  and  similarly ;  and 
all  that  is  necessary  in  any  case  is  to  define  and 
employ  them  with  exactness.     To  consume  is  to  pur- 

,isurrx^(oyy  chttse  anything.  The  consumer  is  the  purchase^',  or 
customer.  Consumption  is  purchase,  I  have  said 
that  consumption  is  the  correlative  of  production, 
but  only  in  this  sense,  that  each  party  to  an  ex- 
change is  both  producer  and  consumer ;  each  is 
_         producer  as  having  prepared  himself  to  sell  some- 

'  ~,  -^fi^^^Si  ^^^  ^^^h  is  consumer^  as  being  prepared  to 
buy  something.  These  words  are  correlative  just 
as  demand  and  supply  are  correlative.  There  is 
no  production  independent  of  consumption,  and  no 
consumption  independent  of  production ;  and  there 
is  no  need,  accordingly,  of  treating  consumption,  as 
Wayland  and  Walker  have  done,  as  a  separate 
branch  of  the  subject. 

Tw^o   things,   however,  are  worthy  of  notice   in 

^  v^'  passing.     First,  the  old  definition  of  Political  Econ- 

p  ^  T    omy,  as  the  science  of  the  Production,  Distribution, 

t,  Gco-i-.       and   Consumption    of  Wealth,  is,  when   all   these 
|ft.>^5       words  have  been  defined  with  generality  and  strict- 
ness, identical  in  meaning  with  the  new  definition, 
as  the  science  of  Exchanges ;  but  the  latter,  never- 
theless, is  on  every  account  to  be  preferred,  as  carry- 


►-VMA.  <»,>.. 


ON  PRODUCTION.  121 

ing  the  mind  directly  to  the  central  phenomena  of 
the  subject.  Second,  there  is  in  the  public,  and 
particularly  in  the  popular  mind,  a  false  estimate  of -^  _ 

producers  in   contrast  with   consumers,  as   if  these ^^''^  -^^ 
were  separate  classes,  and  as  if  the  producers,  that^/H"*^^«-^ 
is  as  it  lies  in  their  mind,  the  growers  and  manufac-^<^^"^«^^^^^^^ 
turers  of  material  commodities,  were  more  worthyf*-*-"-^  ? 
of  encouragements  than  the  consumers  of  these  pro- 
ducts.    This  is  very  shallow.     Farmers  and  manu- 
facturers  are  no   more   essential  to  exchange  than 
shippers  and  bankers.     Even  in  this  false  sense  of 
the  word,  where  would  the  producers  be  were  it  not 
for  the  consumers?     Where  would  production  be  at 
any  one  point  were  it  not  for  production  at  other 
points,  by  means  of  which  "  to  consume "  the  pro- 
ducts of  the  first  point  ?    Where  would  labor  be  were 
it  not  for  the  demand  for  that  which  is  wrought? 

INow  let  us  examine  the  underlying  law  of  Produc- 
tion.    Production  is  effort.     But  efforts  are  irksome. 
Is  there,  then,  no  way  to  lessen  efforts,  to  make  them 
less  onerous,  and,  at  the  same  time,  more  produc- 
tive ?     Yes,  thank  God,  there  is !     We  may  bring  to  //  '^y  <i  ^^ 
our  aid  the  gratuitous  help  of  Nature  !    The  world  is 
full  of  powers  which  we   may  employ  to  facilitate 
our  work.     For  example,  at  first  people  ground  their 
grain  by  hand ;  and  it  was  a  weary,  weary  task  io>^Mu*X^/U^ 
sit  cramped  at  the  mill  all  day,  and  turn,  and  turn, 
and  turn.^     The  effort  was  great,  and  the  result  was 
small.     At  length  it  occurred  to  somebody  that  the 
weight  of  water  would  turn  a  wheel,  and  that  the 
wheel  might  turn  the  mill-stones.     Once  thought  of, 
the  water-wheel  was  soon  an  actual  fact.     Instead 

1  Exod.  xi.  5;  Isa.  xlvii.  2. 


122  ELEMENTS  OF  POLITICAL  ECONOMY. 

of  human  strength,  Nature  works  now,  and  what  is 
better,  works  for  nothing!  Man's  service  is  still 
needed,  he  feeds  the  hopper,  tends  the  bags,  but  be 
does  not  ache  so  badly  !  Nor  is  this  all.  One  day's 
labor  is  now  vastly  more  productive.  More  grain  is 
ground,  bread  comes  easier  to  the  poor,  and  the 
wheel  which  free  water  turns  blesses  its  millions 
with  a  cheapened  product! 

Let  us  take  another  illustration.     The  old  hand- 
t.i.y^AX^'^  t^M^'^M^*^^^^^  was  the  only  means  antiquity  knew  of  for-pro- 
V  **'^  **'"^*^/  '       curing  clothing.     The  shuttle  was  thrown  by  human 
muscle.     Every  thread   cost   a   throw.     This   work 
y>HctAlu9         was  mostly   done   by  women.     The  word  wife   is 
flu^M  /  ^   r   supposed  by  some  to  have  been  first  derived  from 
'    '       /   the  word  to  weave.     While  the  slave  woman  sat  on 
the  ground,  and   turned  the  handle  of  the  mill  to 
grind  the  grain,  the  wife  was  exalted  to  the  dignity 
of  the  loom,  and  worked  away  at  the  monotonous 
task,  thread  by  thread,  thread  by  thread.     Doubtless 
the    hand-loom  was   a  great   improvement   on    the 
earlier  processes,  and  was  itself  gradually  improved 
as  the  centuries  went  by,  each  improvement  being 
the  substitution  either  of  a  gratuitous  force  of  Na- 
ture for  an  irksome  human  effort,  or  an  easier  pro- 
cess of  art  for  a  more  laborious  one.     Every  step  of 
improvement  was  a  lessening  of  obstacles  with  refer- 
ence to  a  given  satisfaction.     All  the  way  up  to 
our  present  admirable  machinery  —  the  power- loom, 
U«.V  tX'Ov..^^  „  which   weaves,  as  if  by  magic,  while  a  child  can 
^  ^h^}J^^^   <vr    tend    it  —  every   step   has    marked   a   lessening   of 
^f«^;:;i,jttAv^4.Uc:^(  efforts  relatively  to  utilities.     The  utility,  the  satis- 
faction, the  yard  of  cloth,  has  cost  less  and  less  of 
human  effort,  not  only  to  the  producer,  but,  through 


ON  PRODUCTION.  123 

exchange,  to  everybody.     Accidental  causes  in  dif- 
ferent countries   may  interrupt   this   progress   for  a 
little  time  in  any  single  direction,  but  the  law  will 
soon    assert    itself  again    in   spite   of  these  causes. 
And  this  progress,  thus  briefly  illustrated  in  the  two 
cases  of  flour  and  cloth,  has  been  going  on,  and  is 
constantly  going  on,  in  all  directions ;  more  striking- 
ly, perhaps,  in  the  production  of  material  commodi-.  /   /  -^ 
ties,  in  which  the  powers  of  Nature  may  be  indefi-         ^  ^  ^ 
nitely  applied  by  machinery,  but  at  the  same   time^^^J^^^^^^^-^  ' 
there  are  no  services  of  any  kind  which  are  not  facil-/.;,,^:^ptv 
itated  in  some  degree  by  the  progress  of  knowledge /yvv*  cMv^^w 
and  experience  ;  and  the  benefits  of  this  increasing 
advantage  come  home,  through  exchanges,  to  every- 
body ;  and,  consequently,  the  satisfactions  of  all  bear 
a  larger  and  larger  proportion  to  their  efforts.  -♦ 

This,  then,  is  the  underlying  and  benevolent  law 
of  production,  that  God  has  placed  freely  at  men's 
disposal  such  materials  and  forces  in  Nature,  that, 
availing  themselves  skilfully  of  these,  onerous  efforts  '^^'='^^*'^' 
bear  a  less  and  less  proportion  to  realized  utilities."^  ^Udx^' 
Men  have  a  strong  motive  to  substitute,  whenever 
they  can,  force  for  muscle,  machinery  for  labor.    The 
farmer  who  used  to  cut  all  his  meadow-grass  with  a 
hand-swung  scythe,  then  rake  it  up  with  a  hand- 
drawn  rake,  and  then  pitch  it  into  the  loft  with  a 
handfork,  now  mows  and  rakes  and  pitches  with  a 
machine.     And  it  is  a  beautiful  consequence  of  this 
law,  that  all  improvements  in  machinery,  all  inven-     .  ,^      .•>» 
tions,  all  substitution  of  Nature's  forces  for  human ^/  ^^,^,^jii. 
labor,  soon  become  the  common  property  of  mankind. 
Patent  rights  speedily  expire  by  their  own  limitation, 
secret  processes  are  sure  to  become  known,  and  the 


124  ELEMENTS   OF  POLITICAL  ECONOMY. 

competition  of  the  different  men  who,  under  a  system 
of  freedom,  will  be  sure  to  use  these  gratuitous  helps, 
h  sJLj^'y-'^^  will  compel  each  of  them  to  sell  their  product  at  a 
7k*^-*  iTUi^'^^^aite  graduated  only  by  the  actual  human  service 
^ttc  -vU  £:p.A^  rendered  ;  so  that,  the  liberal  gifts  of  Nature,  though 
J.4JUZ^ ti-^Y^'  seemingly  monopolized  at  first  by  ingenious  men, 
;: ;  '^  are  not  long  intercepted  in  their  descent  towards  the 

masses  of  mankind.  An  invention  of  great  merit 
,  even  at  first  does  not  benefit  the  patentee  alone;  as 
a  patentee,  his  interest  leads  him  to  lower  the  price 
of  his  product,  to  bring  it  within  the  reach  of  a 
wider  circle  of  consumers ;  and  so  soon  as  the  patent 
has  expired,  the  benefit  has  at  once  a  wider  .reach. 
The  steam-engine,  for  example,  has  long  been  com- 
mon property.  There  are,  indeed,  certain  features 
of  the  more  perfect  engines  still  restricted  in  their 
manufacture  by  the  rights  of  individuals,  and  this 
will  always  be  so  while  invention  continues  busy, 
but  the  perpetual  tendency  in  all  inventions  is  from 
individual  property  towards  a  common  right.  And 
it  is  here  in  place  to  remark,  that  the  application  of 
machinery  to  all  departments  of  production,  and  the 
introduction  of  improved  processes  of  every  name, 
can  hardly  in  the  first  instance  be  prejudicial  to  any, 
and  are  sure  ultimately  to  be  beneficial  to  all. 
.  J  What  is  the  effect  on  values  of  these  processes 
*  ^'  ^*  now  made  easier  in  all  directions  ?  Clearly,  since 
value  is  nothing  but  the  relation  between  two  ser- 
vices exchanged,  no  effect  at  all  is  produced  on  val- 
ues, if  the  improvements  have  gone  on  equally  in  all 
directions.  Everything  exchanges  just  as  before.  If 
the  improvements  have  not  gone  on  equally,  then 
the  value,  that  is,  the   purchasing  power,  of   those 


ON   PRODUCTION.  125 

prodiicts  is  diminished  in  whose  production  the  jm- 
provements    have   been    relatively  greater.     As   the 
service  has  now  diminished,  the  value,  other  things 
being  equal,  has  diminished  along  with  it.    For  such 
a  service    less   can    be    demanded    in   return.     ThjB 
utility  of  the  product,  on  the   other   hand,  that   is, 
its  capacity  to  gratify  desire,  remains  as  before.     A  _     ■     ^. 
less  effort  produces  the  same  utility.    The  portion  of     '1^°^   '"'*' 
effort  thus  set  free,  however,  is  not  probably  idle.    It  "r^   '    '"t 
will  be  still  put  forth  to  create  a  larger  number  of 
products  of  the  same  kind,  each  one  of  which  indeed 
has  less  purchasing  power  than  before,  but  the  aggre- 
gate value  of  which  is  much   greater   than   before.  ;         /  — 
For   example,  when  machinery  is  employed   in  the 
making  of  gloves,  which  before  were  cut  and  stitched  \!  r'^^*^ 
by  hand,  the  value  of  a  pair  of  gloves,  estimated  in"  - 
anything  whose  production  has  not  been  altered  by 
a  similar  improvement,  will  infallibly  decline  ;    but 
the  aggregate  value  of  all  the   gloves  made  in  the 
establishment  will  be  greater  than  before,  because 
otherwise  there  would  have  been  no  motive  to  intro-  <     , .    ' . 
duce  the  machinery.     Does,  then,  the  machine  origi- 
nate value,  contrary  to  the  doctrine  in  the  chapter  on  -.. 
value  ?     Not  strictly.     The  machine  originates  util-      ' 
ity,  since  each  pair  of  the  now  increased  number  of  ^^ 

gloves  has  the  same  utility  as  a  pair  of  the  former  ■ 
fewer  number ;  and  the  maker  is  able  to  render  a 
service  to  a  greater  number  of  persons  than  befo^; 
and  it  is  true,  that,  for  a  time,  especially  if  the  pro- 
cess be  not  yet  generally  applied  in  glove-making, 
before  value  has  a  chance  to  adjust  itself  to  the  new 
state  of  things,  he  will  realize  extra  gains;  he  will 
obtain,  in  part,  the  old  price  for  his  product,  and  it 


126  ELEMENTS   OF  POLITICAL  ECONOMY. 

would  seem,  in  this  case,  as  if  the  machine  created 
value.     Nevertheless,  it  is  only  a  transitory  state  of 
things.     Just  as  soon  as  machines  come  to  be  gen- 
erally employed  in  the  business,  value  adjusts  itself, 
through  competition,  to  the  real  human  service  ren- 
dered, and  the  extra  gains  of  the  first  operators  are 
cut  off.     The  gain  of  the  reduction  has  now  become 
permanent  to    all   consumers  of  gloves.     It  is  this 
interval  between  the  old  price  and  the  new  which 
gives   to  producers  the  margin  for  their  enterprise, 
Nj  1^    and  a  sharp  spur  to  invent  and  adopt  improvements. 
^*       '     J  '^^^  improvements  once  become  general,  the   gain 
^'     redounds  to  the  whole  community.     The  value  then 
,^^„^..^^<r»       ^^  ^^j  services  which   have   been  facilitated  by  im- 
^^  "'?  proved  processes,  is  constantly  being  lessened  rela- 

tively to  services  not  equally  facilitated ;  and  here 
we   gain   the   first  glimpse   of  a  truth,  which  will 
.  -..  ,-cUU^   afterwards  appear  in  the  clearest  light,  namely,  that 
twN^vv^^w  fU^.  the  value  of  commodities  tends  to  decline  as  com- 
•duv.  pared  with  human  labor,  and  therefore,  that  there  is 

''  -'  .™  ,..:^  inwrought  into   the    nature   of   things    a   tendency 
^ixL^rr^     towards   the  elevation  of   the  masses  of  men  in  a 
scale  of  comforts. 

A  leading  proposition  of  production  is  the  follow- 
ing :  —  Production  may  go  on  indefinitely  in  all  direc- 
tions without  ever  a  fear  of  reaching  a  general  glut 
of  products.  This  proposition  was  first  fully  devel- 
oped by  Say,  in  the  fifteenth  chapter  of  his  well- 
known  treatise  on  '*  Political  Economy,"  and  the  proot 
of  it,  and  some  of  the  consequences  of  it,  are  well 
worthy  of  our  attention.  I  shall  put  the  proof  of  it 
*^  \  ^-  i»  this  form :  the  desires  of  men  which  the  efforts  of 

^^^'^'^  *  other  men  can  satisfy,  are  unlimited  in  number  and 


ri.,  e/w-V  at* ^  •:-■>-■ 


ON  PROOUUTION.  127 

indefinite  in  degree ;  and  therefore,  mutual  efforts 
can  continue  to  be  put  forth  in  exchange,  until 
these  unlimited  and  indefinite  desires  of  all  men  are 
all  met  —  a  goal  which  never  can  be  reached.  This 
proposition  demolishes  at  a  stroke  the  fallacy  which 
pervades  Dr.  Chalmers'  book  on  "  Political  Economy,"  QLoU^^*^ 
namely,  that  the  universal  market  is  limited,  and  ^yri^^^  • 
therefore,  were  it  not  for  the  unproductive  consump- 
tion of  the  rich  and  luxurious,  and  the  equally  un- 
productive consumption  of  wars,  there  would  soon 
be  a  general  glut,  and  production  must  cease  for  the 
lack  of  a  vent  for  its  products.  Whjit  constitutes  a  ^  ^  .^..^^ 
market  for  anything^?  This,  that  somebody  desires 
the  service  thus  offered,  and  is  willing  to  render  a 
return  service  acceptable  to  the  offerer.  Only  two 
thin£?s  can  limit  the  universal  market,  first,  a  lack 
of  desires,  and  secondly,  a  lack  of  return  services,  ^..^^v^^i 
But  there  can  be  no  lack  of  desires  at  any  time,  andlc>v>\V';.A 
there  will  be  the  greatest  plenty  of  return  services 
where  production  is  most  busy  and  most  universal. 
Therefore,  again,  no  general  glut  of  products  is  pos- 
sible to  occur.  A  truth  which  we  have  already  seen 
in  another  connection,  reappears  here  as  a  conse- 
quence of  this  proposition,  and  will  reappear  again 
and  again,  namely,  that  all  persons  are  interested 
commercially,  as  well  as  morally,  in  the  prosperity  of 
other  persons,  and  each  nation  which  has  anything 
to  exchange,  is  directly  interested  in  the  prosperity  t 
of  all  other  nations ;  because  the  more  production 
everywhere,  the  better  market  everywhere.  A  mar- 
ket for  products  is  made  by  products  in  market. 

But  while  no  such  thing  as  a  general  glut  of  prod- 
ucts ever  did,  or  ever  can  occur,  a  glut  in  respect  to 


128  ELEMENTS   OF   POLITICAL  ECONOMY. 

certain  services  is  very  common.  Through  want  of 
foresight,  or  miscalculation,  particular  services  are 
offered  in  too  great  abundance,  or  of  a  kind  not 
adapted  to  the  demand,  and  in  respect  to  these  the 
market  is  truly  said  to  be  glutted.  This  frequently 
happens  with  editions  of  books;  more  copies  are 
printed  than  can  be  sold  at  remunerative  prices. 
Also  when  fashion  changes,  the  goods  which  were 
fashionable,  but  are  so  no  longer,  are  apt  to  be  in 
excess  of  the  demand.  The  only  precaution  that 
can.be  taken  to  avoid  losses  of  this  character,  is  the 
cultivation  of  foresight,  by  studying  as  accurately 
as  possible  the  nature  of  human  desires,  and  the 
changes  that  have  been  observed  to  take  place  in 
them.  This  constitutes  mercantile  sagacity ;  and 
the  most  successful  producers  in  all  departments  are 
those  who  best  develop  this  sagacity,  who  adapt 
their  services  to  the  existiqg  and  coming  demand, 
who,  to  excellence  in  the  substance  of  their  services, 
add  taste  and  attractiveness  to' their  form,  who  tend 
rather  to  lead  the  fashions  for  the  many  than  fol- 
low in  their  wake.  The  field  of  production  is  like 
the  billowy  and  heaving  sea :  to  navigate  most  suc- 
cessfully requires  foresight,  a  wise  courage,  a  power 
of  adaptation  to  varying  circumstances,  skill  to  veer 
and  tack  when  the  wind  changes,  and  a  will  to  run 
before  a  favoring  breeze  with  all  sails  set.  Produc- 
tion, as  a  general  rule,  is  no  dead  level  of  monoto- 
nous exertion  ;  since  its  sphere  is  life  with  its  wants, 
f\^:  ^Inian  with  his  desires;  and  there  is  scope  for  the 
*^  development  of  ingenious  mind  in  almost  all  of  its 
departments.  Since  all  exchange  is  due  to  the 
diversity  of  relative    advantage,  whoever    develops 


ON  PRODUCTION.  129 

his  powers  of  observation,  of  application,  of  adap. 
tation,  to  a  higher  point,  and  avails  himself  more 
skilfully  of  all  peculiar  facilities,  will  reap  a  larger 
share  of  the  harvest  of  exchange. 

The  immense  increase  of  production,  and  the  su- 
perior perfection  of  products  consequent  upon  what^,,^^^,o^ 
he  calls  the  Division  of  Labor,  was  fully  pointed  out  j^i  ^^  ^ 
by  Adam  Smith.     The  chapter  in  which  this  author 
treats  of  the  division  of  labor,  has  always  been  the 
most  famous,  and  is  still  one  of  the  most  interesting 
in  the  "  Wealth  of  Nations."    We  have  already  seen 
how  exchange  is  stimulated  and  made  profitable  by 
the  diversity  of  employments,  and  by  the  applica- 
tion of  all  peculiar  gifts  to  the  corresponding  obsta- 
cles which  lie  in  the  path  of  production :  this  is  the 
more  general  truth   of   which   Adam    Smith's   prin- 
ciple of  the  division  of  labor  is  a  specific  part.     He 
means  by  this  term  the  dividing  up  of  a  process  or   ^     .^ 
employment  into  particular  parts,  so  that  each  V^^^  aLJajL^ 
son   employed   can    devote   himself  wholly  to    one/^L^^_^/ 
section  of  the  process.     The  proposition  is,  that  by 
means  of  the  division  of  labor,  the  processes  of  pro- 
duction are  vastly  facilitated.     He  cites,  as  an  illus-       o.)<.x^<. 
tration,  the  manufacture  of  pins.     One  man  draws 
out  the  wire,  another  straightens  it,  a  third  cuts  it, 
a  fourth  sharpens  the  points,  a  fifth  grinds  it  at  the 
top  for  receiving  the  head.     The  making  the  heads 
consists   of   two  or  three  distinct  operations,  each 
confided  to  a  single  person.     The  remaining  proc- 
esses  are    similarly  divided  up,  and    the   result   is, 
according  to  Dr.   Smith,  that  in  a  single  establish' 
ment,  employing  only  ten  persons,  48,000  pins  are 
made  in  a  day,  while  if  each  man  went  through  all 


130  ELEMENTS   OF  POLITICAL  ECONOMY. 

the  processes  himself,  he  could  hardly  make  twenty 
pins  a  day,  or  two  hundred  for  the  whole  establish- 
meni.  Perhaps  a  more  striking  illustration  of  the 
x\t  h  -mrM:.  division  of  labor  may  be  found  in  the  art  of  watch- 
'  making.  According  to  evidence  brought  before  a 
committee  of  the  British  House  of  Commons,  there 
are  one  hundred  and  two  distinct  branches  of  this 
art,  to  each  of  which  a  boy  may  be  put  apprentice ; 
and  when  his  apprenticeship  is  expired,  he  is  unable, 
without  subsequent  instruction,  to  work  at  any  other 
branch.  The  watch-finisher  is  the  only  person,  out 
of  the  onA  hundred  and  two,  who  is  able  to  work  in 
any  other  department  than  his  own.  The  causes 
of  increased  efficiency  imparted  to  production  by 
the  division  of  labor  are  reduced  by  Dr.  Smith  to 
three :  — 

1.  The  improved  dexterity,  corporeal  and  intel- 
lectual, acquired  by  the  repetition  of  one  simple 
operation. 

2.  The  saving  of  the  time  which  is  commonly 
lost  in  passing  from  one  species  of  work  to  another, 
and  in  the  change  of  place,  position,  and  tools. 

3.  The  invention  of  a  great  number  of  machines 
which  facilitate  and  abridge  labor  in  all  its  depart- 
ments. Because  the  simple  task  which  complete 
division  of  labor  gives  to  each  operator  is  precisely 
what  machinery  may  most  easily  be  made  to  per- 
form, and  what  the  operator,  if  intelligent,  will  be 
most  likely  to  devise  machinery  for.  Add  to  these 
advantages  of  the  division  of  labor  these  other :  — 

4.  The  saving  of  the  waste  of  material,  partly  as 
the  result  of  this  improved  dexterity ;  and  frequently, 
also,  as  the  result  of  the  shorter  time  required  to  fin- 
ish up  the  product. 


ON  PRODUCTION.  131 

5.  The  more  economical  distribution  of  labor  by 
classing  the  operatives  according  to  their  strength, 
skill,  and  experience.  The  easier  parts  may  be  per- 
formed by  women  and  by  children,  whose  labor  is 
less  expensive ;  the  ruder  parts  by  ruder  hands ;  and 
only  the  more  difficult  processes  by  the  most  skilful 
workmen,  who  must  be  highly  paid.  Next  to  the 
first,  this  advantage  is  the  most  important. 

6.  There  is  a  saving  in  tools.  The  various  imple- 
ments, being  now  in  constant  use,  yield  a  better 
return  for  their  original  cost ;  and  therefore  their 
owners  can  afford  to  have  them  of  a  better  quality, 
and  this,  too,  facilitates  production. 

7.  It  brings  the  producers  and  consumers  into 
more  intimate  and  safe  relations.  The  division  of 
labor  between  the  wholesale  and  the  retail  trade  is 
of  great  advantage.  The  retailers  know  their  local 
markets,  and  supply  them  without  loss  or  waste  from 
the  wholesale  reservoirs.  The  wholesale  reservoirs 
neatly  control  the  various  streams  of  production, 
according  as  demand  is  slackened  or  intensified. 
Thus,  for  example,  a  large  city  is  daily  supplied 
with  fresh  meat,  without  the  loss,  perhaps,  of  a  hun- 
dred weight. 

There  are  some  disadvantages  resulting  from  this 
division  of  labor :  —  "  ^  -<,  t< 

1.  The  work  becomes  in  some  departments  mon-'^.^" 
otonous   and   irksome,  while  some  variety  of  occu- 
pation would   afford  relief  by  employing   different 
muscles,  or  different  faculties  of  the  mind. 

2.  There  is  some  tendency  to  dwarf  the  mental 
and  corporeal  powers,  through  exclusive  attention  to 
one  part  only  of  a  complicated  process. 


132  EI.EJIENTS   OF  POLITICAL   ECONOMY. 

3.  When  this  part  has  been  learned,  and  long 
made  the  means  of  a  livelihood,  a  person  has  less 
power  to  adapt  himself  to  change  of  circumstances, 
and  becomes  too  much  dependent  on  the  continu- 
ance of  the  business  in  that  form. 
J     a  The  degree  to  which  the  division  of  labor  can  be 

'  Y/%?  '"^^  carried,  depends  in  part  upon  the  extent  of  the  mar- 
*^^   ■  ket,  and  in  part  upon  the  nature  of  the  employment. 

To  recur  to  Dr.  Smith's  illustration  of  the  pins :  if 
tf.o^  tV(jr  >  the  market  would  only  have  received  24,000  pins 
rw'vTva  1>  a  day  from  that  establishment,  instead  of  48,000, 
^-y^X  ^l'  the  division  of  labor  could  not  have  been  carried  to 
'*-'^''  the  same  extent,  because  if  it  had  been,  the  men 

,  would  be  idle  one  half  the  time.  In  that  case,  some 
of  the  men  would  be  dismissed,  and  some  of  the 
separate  processes  be  combined,  and  production 
would  be  less  efficient  from  the  limitation  of  the 
market.  Production,  therefore,  is  most  profitable 
t^-v^^x^^j^  when  the  market  is  broad  enough  to  allow  a  full 
*^^^'*^^ill^^^^^^^^"  of  labor,  and  complete  employment  to  all 
*  'the  operatives ;  and,  the  market  being  presupposed, 

\(/vat^'     ^^  more  likely  to  be  profitable  in  large  establishments 
,  .1-''    than  in  small;  because,  (1)  the  division  of  labor  can 
;  ^  be  carried  to  a  fuller  extent ;  (2)  more  perfect  ma- 

chinery can  be  afforded;  (3)  relatively  less  superinten- 
dence is  required ;  and  (4)  the  scraps  and  ends  of  a 
large  business  are  frequently  of  sufficient  importance 
to  justify  one  or  more  subordinate  branches  of  busi- 
ness in  connection  with  the  main  business.  For 
example,  a  large  saw-mill  may  profitably  furnish 
lath  as  well  as  lumber,  since  the  refuse  boards  and 
slabs  may  go  to  lath.  A  wholesale  butchering  estab- 
lishment of  neat  cattle  might  profitably  have,  in  con- 


|t^ 


ON    PRODUCTION.  VS'S 

nection  with  the  sale  of  meat,  a  tannery  to  dispose 
of  the  hides,  a  comb  manufactory  to  dispose  of  the 
horns,  a  glue  manufactory  to  dispose  of  the  feet,  a 
stall  for  the  hair,  which  is  useful  in  plastering,  while 
the  offal  might  be  chemically  disposed  of  in  fer- 
tilizers. 

The  nature  of   the   employment   also   limits  the,,^,  y^. 
degree  to  which  the  division  of  labor  may  be  car-  -Cat^JAs 
ried.     Agriculture,  for  instance,  allows  less  of  this^^^^J^ 
division  than  most  other  departments  of  production, 
because    its    various    operations   cannot,    from    the 
nature  of  the  case,  become   simultaneous.     When 
the  sowing  is  once    done,  the  producer  must  wait 
some  months  upon  Nature,  till  his  agency  is  again 
required  in  the  reaping.     This  fact,  that  agriculture 
can  be  less  facilitated  by  the  division  of  labor,  and  by 
the  use  of  machinery,  than  most  other  departments 
of  material  production,  constitutes  one  ground  of  an 
important  truth,  which  we  shall    hereafter  perceive 
stands  also  on  another  and  firmer  ground,  the  truth,   . 
namely,  that  agricultural  products  tend  constantly  to  ^^^^^ 
rise  in  value  as  compared  with  other  commodities,  ^  *7   - 


134  ELEMENTS  OF  POLITICAL  ECONOMY. 


CHAPTER  VL 

ON    LABOR. 

It  is  a  curious  thing,  and  one  that  draws  after  it 
very  important  consequences,  that  physical  labor 
consists  simply  in  moving  things.  When  a  man 
works  with  his  hands,  all  that  he  does,  or  can  do, 
is  to  produce  a  series  of  motions.  Human  muscles 
are  only  capable  of  two  things,  namely,  producing 
motion,  and  resisting  motion.  All  the  marvellous 
results  of  human  labor  in  all  the  world,  have  flowed 
from  so  simple  a  matter  as  the  contraction  and  ex- 
pansion of  muscle.  Work  is  motion,  and  weariness 
is  weariness  of  muscle.  The  world  of  materials  is 
so  cunningly  constructed,  that,  when  they  are  moved 
into  right  position  the  powers  of  Nature  do  the  rest, 
and  objects  of  utility  are  the  result. 

When  the  pioneer  fells  a  tree,  he  moves  his  axe 
through  the  trunk,  and  then  the  power  of  gravitation 
seizes  the  tree,  and  brings  it  to  the  ground.  He  pro- 
duces a  series  of  motions  upon  the  tree,  but  the  final 
motion,  by  which  the  century-girdled  oak  comes 
crashing  to  the  earth,  is  not  of  his  producing.  Na- 
ture does  that.  Wool,  cotton,  and  flax,  have  by 
nature  a  certain  tenacity  of  fibre.  Man  moves  these 
fibres  in  certain  relations  to  each  other  by  an  instru- 
ment called  a  spindle,  and  the  result  is  thread.  Then 
the  threads  are  moved  in  certain  relations  with  each 


ON  LABOR.  135 

other  by  an  instrument  called  a  shuttfe,  and  the  re- 
sult is  a  web  of  cloth.  The  tailor  moves  his  shears 
through  the  cloth,  and  then  his  needles,  and  the  result 
is  a  coat,  —  the  object  of  utility  for  which  all  these 
processes  were  gone  through  with.  The  farmer  first  . 
moves  the  ground,  then  moves  his  seeds  into  it, 
moves  his  sickle  through  the  standing  corn,  moves 
his  corn  to  the  granary  and  mill,  moves  his  meal 
from  the  mill  to  the  larder,  at  which  last  point  the 
housewife  begins  to  operate  upon  it  in  a  new  series 
of  motions.  She  moves  the  meal  to  the  kneading- 
trough,  and,  having  well  moved  it  there,  moves  it  to 
the  oven,  and,  from  the  oven,  after  due  interval, 
moves  it  to  the  table,  at  which  point  production 
ceases,  and  consumption  begins. 

Physical  labor,  then,  is,  and  can  be,  nothing  but  rct^^u« 
this,  an  effort^  by  which  materials  or  implements  are  .     .  ^ 
moved  with  reference  to  a  given  result.     Nature  fur-    V-_ 
nishes  all  the  materials,  and  all  the  primary  qualities ^.^^^^^  ; 
of  which  we  avail  ourselves  in  production.      ShesA^^.--^ 
cooperates  at  every  step.     We    pay  her  absolutely  .,;  IJ>^ 
nothing  for  all  she  does.     All  we  can  shirk  off  our        ' 
own  shoulders,  and  throw  upon  hers,  is  so  much  clear  ^f^^. 
gain.     And  it   is  a  most  happy  circumstance  that  jj^^^<^>, 
this  is  being  done  more  and  more  completely  in  the  ' 

production  of  nearly  all  commodities.  Nature  is 
good,  to  use  a  commercial  term,  for  all  she  can  be 
made  to  carry. 

Now,  since  motion  is  the  only  thing  which  man  is 
required  to  furnish  in  the  production  of  commodities, 
he  naturally  looks  around  for  helps  in  this  mattei.    '^^^-s 
The  first  thing  he  lighted  on,  as  a  help  to  produce       '^ " 
motion,  was  the  domestic  animals.     The  ox,  the  ass. 


136  ELEMENTS  OF  POLITICAL  ECONOMY 

the  horse,  were  doubtless  domesticated  in  the  very 
beginnings  of  society.     Men  want  these  animals  to 
produce  motion   for   them — simply  that.      And  as 
they  can   be  used  in  so  many  different  places,  and 
for  such  a  variety  of  purposes,  and  are  so  cheaply 
Tu  -^^-f^v-^-y reared,  they  are  exceedingly  convenient  as  a  motive 
^^rv4  ^    'pQ^gj.,  and  will  probably  never  be  superseded.     The 
7^*b  iL^mIv."    discovery  and  application  of  the  great  motive  powers 
yf^  C^  U>>  .of  water   and   steam    have   scarcely   occasioned   a 
, -wfrV^.  lessened  demand  for  the  earlier  and  humbler  motors, 

oxen  and  horses.  Some  of  my  readers  will  probably 
remember  the  time,  when  the  introduction  of  rail- 
roads was  opposed  by  some  people,  on  the  ground 
that  the  value  of  horses,  and  the  business  of  team- 
sters would  thereby  be  destroyed.  Experience  has 
demonstrated  in  this  case,  as  it  does  in  all  similar 
cases,  that  improved  machinery,  and  improved  facil- 
ities of  all"  kinds,  so  far  from  harming  any  class  of 
persons  permanently,  are  likely  to  be  a  gain  to  all 
classes  of  persons.  At  least,  they  only  are  harmed, 
who  stupidly  hold  on  to  the  old  methods. 

Labor,  having  employed  from  a  very  early  time 
?^.c<n*^/  as  a  motive  power  the  domestic  animals,  secured 
V-7^ '? ,  ft-^o  after  a  while,  as  inanimate  auxiliaries,  the  water- 
^  'VV^*^  ■    wheel  and  the  windmill;  and,  much  later,  the  steam- 
engine.     It  is  a  point  that  has  scarcely  been  noticed, 
aiJ  J.T^'^     ^ven  if  it  has  ever  been  noticed  at  all,  that  all  these 
auxiliaries,  whether  animate  or  inanimate,  produce 
simple  motions  of  the  same  kind  as,  and  only  sup- 
plemental to,  the  motion  produced  by  a  human  arm. 
The  most  ponderous  engine  merely  reduplicates  that 
which  the  arm  of  a  child  is  capable  of;  while  in 
point  of  delicacy  and  firmness  of  touch,  perhaps  no 


ON  LABOR.  137 

machinery  has  yet  been  devised  which  can  subdivide 
and  apply  this  motion  as  skilfully  as  the  human 
fingers  can.  It  is  said,  that  some  of  the  lace  made 
wholly  by  hand,  is  finer  and  more  delicate  than  any 
yet  woven  by  machinery,  although  the  introduction 
of  machinery  into  lace-making  has  cheapened  the 
product,  according  to  Dr.  Ure,  to  about  -gij  of  its  for- 
mer cost.  What  we  call  power,  then,  however  pro-  Z^^,,,^^  ^^ 
duced,  is  simple  motion.  But  in  order  to  subdivide  ^vi-..„;u.*^ 
these  motions  and  apply  them  to  the  various  purposes 
of  production,  implements  of  all  sorts  are  needed, 
and  implements,  as  we  shall  see  in  the  next  chapter, 
are  always  the  gift  of  capital.  But  no  power  how- 
ever mighty  or  however  delicate,  and  no  implements 
however  perfect,  can  ever  dispense  with  some  por- 
tion of  human  labor.  Not  until  machinery  can  be  I 
taught  to  think,  to  adapt  means  to  ends,  will  human  | 
labor  cease  to  play  a  chief  part. in  production.  These 
therefore,  are,  and  always  will  be,  the  three  requisites 
of  material  production  :  Labor,  Power- Agents,  Cap- 
ital.   * 

Besides  physical  labor,  there  are  the  various  formscZ^/^-*^ 
of   mental   efforts  put  forth  by  men  to  satisfy  ihe^*^"^^* 
desires  of  other  men,  and  with  reference  to  a  return,^!^!^^^^ 
So  far  as  exertion,  physical  or  mental,  is  put  forth 
for  amusement,  or  for  a  pure  benevolent  motive,  it 
has  nothing  to  do  with  Political  Economy.    It  is  only  L^feoft 
exertion  which  demands  for  itself  something  in  ex-^^r^t^ 
change^  that  is  technically  labor.     Labor,  which   i^pJiy^t.^ 
primarily  mental,  such  as  most  professional  labor, 
the    labor  of   the  editor,  the  teacher,  the   architect 
has  of  course  little  connection  with  motion  or  with 
commodities.     But  it  is  not  on  that  account  less 


138  ELEMENTS  OF  POLITICAL  ECONOMY. 

useful  or  less  valuable.  The  exchange  of  simple 
services  depends  on  the  same  principles,  gives  rise  to 
the  same  phenomena,  and  is  amenable  to  the  same 
science  as  all  other  exchanges.  One  man,  as  the 
violin-maker,  offers  services  in  which  a  commodity 
^^^'^^'^^  '  **^intervenes ;  another,  as  the  violinist,  offers  services 
J^^^^^i-  in  which  no  commodity  intervenes  ;  each  has  gained 
in  his  own  art  a  point  of  relative  advantage  as  com- 
pared with  other  men,  and  these  doubtless  have 
gained  some  point  of  relative  advantage  as  compared 
with  them ;  each,  by  the  sale  of  his  respective  ser- 
vice, meets  some  desire  of  the  buyer,  and  is  paid  on 
the  same  principle  as  the  other.  The  violin-maker 
of  Cremona,  who  sold  his  instruments  for  five  hun- 
dred francs  apiece,  was  no  more  and  no  less  a  laborer, 
in  the  language  of  our  science,  than  Paganini,  who 
sold  an  hour's  playing  in  the  theatres  for  five  thou- 
sand francs. 

Having  now  seen  what  labor  is,  let  us  pass  to  the 

principles  that  determine  its  remuneration.     I  can 

.T^^-^x^y       ggg  jjQ  reason  why  the  purchasing-power  of  labor  is 

,     ^""j/*—  not  determined  in  the  same  way  as  the  purchasing- 

k^o»'w4vltk    power  of  all  other  things;   and,  if  so,  there  is  no 

^^^''^"-'^^'  ^  •  difficulty  in  pointing  out  the  general  law  of  wages. 

I  go  back  constantly  to  first  principles,  because  I 

believe  that  first  principles  really  control  everything. 

Chance  effects  there  most  certainly  are ;  but,  as  they 

happen  now  on  one  side  and  now  on  the  other,  they 

balance  each  other,  and  leave  all  the  great  working 

forces  unaffected.     For  the  sake  of  convenience,  a 

vww-  ^  '     distinction  may  be  made  at  this  point  between  pro- 

^^.^.^^e^AUvvcJ^  feasional  and  common  labor, —  a  distinction  which 

Jv^/'  ^  not  indeed  very  definite,  but  which  is  sufficiently 


ON  LABOR,  139 

BO  for  the  purpose  in  hand.     The  wages  of  profes-w.^U^  -* 

sional  labor  of  all  sorts  run  up  and  down  upon  ^"^^ h*}^^ 

scale  whose  extremes  are  much  wider  apart  than  the^^^v,*^^ 

extremes  of  the  scale  which  marks  the  variations  in 

the  wages  of  common  labor,  while  at  the  same  time 

the  principle  that  determines  the  value  of  both  forms  P^yi^C^^ju 

of  labor  alike  is  the  principle  that  determines   all  ^=^<>*^--^ 


other  value,  namely,  the  law  of  Supply  and  Demand.  ^u^M-^j 
The  wages  of  professional  labor,  however,  are  so  far  (^t-^wo^ 
different  from   the  wages  of  common   labor   as  to 
demand  a  somewhat  distinct  treatment.     Why  could 
Daniel  Webster  demand  a  fee  of  a  thousand  dollars  j^^jj^^jCL, 
for  attending  to  a  single  case  in  court,  Paganini  a  yiA^ ,  ^ 
like  sum  for  an  hour's  playing  on  a  violin,  and  Jenny  *^^- 
Lind  at  least  as  much  for  an  evening's  singing  in  a 
concert  ?     Because  there  was  in  each  case  a  strong 
demand  for  a  peculiar  service,  and  only  one  person 
in  the  whole  world  who  could  render  that  service,  at 
least   in   the  same   perfection.      The    demand  was 
large,  the  supply  was  small,  and  the  value  conse- 
quently great.     The  highest  efforts  of  professional  ^"^^^^^  H 
skill  will  always  receive   a   high  reward,  whenever^*-^*"^^ '^ 
there  is  one  person  even,  who,  together  with  a  strong ''^^'^^^'^ 
desire  for  the  product,  has  also  the  power  to  give  a 
service  in  return  ;  and  especially  whenever  there  are 
many  persons  who  have  a  similar  desire  and  power, 
to  whom,  as  in  the  case  of  Paganini  and  Jenny  Lind, 
the   service  can   be   rendered   in    common   without 
lessening  the  satisfaction  of  each  individual.     That 
the  supply  is  small  in  these  higher  regions  of  skilled 
effort,  is  due  partly  to  the  fact,  that  Nature  is  not 
lavish  in  her  gifts  of  peculiar  talents,  and  partly  to 
the  fact,  that  those  who  have  received  have  assidu- 


140  ELEMENTS  OF  POLITICAL  ECONOMY. 

L  -«vci  iVX  ously  cultivated  them,  and  have  reached  in  conse- 
>j»a:^«^  *-5lC.  quence  a  high  point  of  relative  advantage.  These 
Xltf^Aj^^  persons  have  what  may  be  called  a  natural  monop- 
Cx^ci^'*^^-';  oly  in  their  respective  fields  of  high  effort,  because 
r-  there  are  few  others  who  have  the  natural  gifts  and 

the  acquired  skill  which  enable  them  to  come  in 
competition  with  them.  But  the  objections  which 
lie  with  such  force  against  artificial  monopolies,  can- 
not be  urged  at  all  against  a  natural  monopoly;  for, 
if  the  road  to  excellence  be  open  to  all,  and  no  arti- 
ficial obstructions  thrown  in  the  paths  of  any,  there 
is  no  blame  but  rather  praise  for  him  who  distances 
all  competitors,  and  demands  for  services  of  peculiar 
excellence  a  large  remuneration.  John  Sartain  is  a 
'^&(I^ck\^  '  superior  engraver :  he  enjoys  a  natural  monopoly  in 
the  highest  walks  of  that  art ;  the  wages  of  his  labor 
are  very  high;  yet  nobody  can  complain  of  this, 
since  he  has  had  no  factitious  privileges,  but  has 
fairly  attained  his  excellence  under  freedoni.  Ex- 
change rejoices  in  all  diversity  of  advantage  that  is 
the  birth  of  freedom,  but  reprobates  with  all  her  force 
advantage  that  is  gained  by  artificial  restrictions, 
because  artificial  restrictions  always  infringe  on 
somebody's  right  to  render  services  for  a  return ;  and 
the  right  to  render  services  for  a  return  is  the  funda- 
mental conception  in  the  right  of  Property,  The 
^Y^^  **  •.;^ wages  of  professional  labor,  then,  are  determined  by 
vrr  V*^^  Vi^'-the  relations  between  the  demand  for  such  labor  and 
the  supply  at  hand ;  and  are  usually  higher  than  the 
-w'i/^Jvw'ilvt.,.  wa^es  of  common  labor,  because  the  supply  of  such 
W-wf  laborers  is  restricted  by  the  lack  either  (1)  of  appro- 
priate original  gifts,  or  (2)  of  the  requisite  indust^, 
or  (3)  of  the  means  of  suitable  education  and  train* 
ing. 


Vvi'A''*^**^ 


ON  LABOR.  141 

Within  the  great  law  of  supply  and  demand,  there 
are  several  important  subordinate  principles,  which  '^'V'^ 
go  to  vary  the  wages  of  both  professional  and  com- 
mon labor,  principally  through  their  action  upon 
supply  ;  and  it  is  now  in  order  to  consider  these, 
before  we  pass  to  consider  the  wages  of  common 
labor.  In  common  with  all  the  writers  who  have 
succeeded  him,  I  shall  avail  myself  freely  at  this 
point  of  the  labors  of  Adam  Smith.  That  writer^^'^^^J 
considers  that  there  are  certain  circumstances  in  the/^      ~ 


employments  themselves,  which  either  really,  or  at^  «^v^ 
least  in   men's  imaginations,  make  up  for  a  small 
pecuniary  gain  in  some,  and  counterbalance  a  great 
one  in  others. 

1 .    The  agreeableness  or  di sagreeableness  of  the  /.  tf  <y ^ « 
employments  will  have  an    influence   in   determin-j;^*,.^^. 
jng  the  rate  of  wages  paid  to  those  who  engage  jn 
them.     The  more  agreeable  employment  will  attract  ^^^o^  • 
the  larger   number,  and  will    experience   in   conse-'^*^^^'*^  ' 
quence  the  press  of  competition,  and  the   rate   of 
wages  will  be  lessened  by  the  increased  supply  of 
laborers.     The    more  disagreeable  employment  will 
feel  less  the  pressure  of   numbers,  and  will  secure, 
other  things  being  equal,  a  higher  rate  of  remunera- 
tion in  consequence.      Among  the  elements  which,  ^^       _^ 
in  spite  of  the  diversity  of  natural  tastes,  make  any^^    ^^^ 
employment  agreeable  or  disagreeable  to  the  labor-.,, ^..^u-  a^ 
ers,  are  (1)  the  less  or  greater  exertion  of  physical^*-  ^<^j 
strength  required,  (2)  the  healthful ness  or  unhealth- 
fulness  of  the  labor,  (3)  its  cleanliness  or  dirtiness, 
(4)  the  degree  of  liberty  or  confinement  in  it,  (5)  the 
safety  or  hazard  of  the  employment,  (6)  the  esteena 
or  disrepute  of  it  in  public  opinion.     To  illustrate 


142  ELEMENTS  OF  POLITICAL  ECONOMY. 

each  of  these  in  order,  the  stone-mason,  the  glass- 
blower,  the  scavenger,  the  factory  operative,  the 
worker  in  a  powder-mill,  the  smuggler,  will  each 
receive  a  larger  compensation  owing  to  the  peculiar 
element  of  disagreeableness  involved  in  his  employ- 
ment ;  and  he  will  be  able  to  demand  and  secure  it 
through  the  action  of  the  disagreeableness  upon  the 
supply  of  such  laborers.  Of  all  these  elements, 
public  opinion  is  perhaps  the  most  operative;  and 
if  this  be  favorable  to  an  employment,  and  some 
social  consideration  be  attached  to  it,  and  only  com- 
mon qualifications  be  required  for  it,  the  wages  in  it 
will  infallibly  be  low.  This  is  probably  the  main 
reason  why  so  many  young  women  prefer  to  teach, 
rather  than  be  employed  in  mills,  shops,  or  offices,  and 
why  the  wages  of  female  teachers  are  so  pitifully  low ; 
although  each  of  the  elements  of  agreeableness  spec- 
ified above  may  also  contribute  something  towards 
the  same  result.  If  a  business  be  decidedly  opposed 
to  public  opinion,  it  must  hold  out  the  inducement 
of  a  large  reward,  or  nobody  will  engage  in  it.  This 
explains  the  abnormal  gains  of  the  slave-trade,  the 
liquor-business,  of  gambling-houses,  and  of  lotteries. 
2.  The  easiness  and  cheapness,  or  the  difficulty 
and  expense,  of  learning  different  employments, 
will  have  an  influence  on  the  rate  of  wages  paid 
in  them.  The  more  quickly  and  cheaply  one  can 
learn  to  perform  the  duties  of  a  place  satisfactorily, 
the  less,  so  far  forth,  will  be  his  wages;  because 
there  will  be  many  who  will  compete  with  him  in 
rendei'ing  such  services ;  the  more  time,  difficulty, 
and  expense  involved  in  learning  a  business,  the 
larger,  so  far  forth,  will  be  the  wages  secured  by  it ; 


•  ON  LABOR.  143 

because  fewer  persons  have  the  means,  the  foresight, ^Ki?*:^^^-^^-. 
the  patience,  to  prepare  themselves  for  such  an  avo»>»f*^*7  *^ 
cation.     This  is  the  principal  ground  of  the  dift'er-'^ ''^^^ 
ence  in  the  wages    of  skilled  and  unskilled  labor. ,»^.^,,,l>^3^ 
The  artisan   has,  at  least,  given  time,  and  the  pro- -^i-t-^t^v-. 
fessional  man  has  given  both  time  and  money,  to  fit '>^^^*--"^*^ 
themseives  to  render  the  services  which  they  nowOt^^^^,^ 
offer  to  society;  and  it  is  right,  therefore,  for  them  ^^>>t^«^iJ 
to  demand  a  higher  rate  of  compensation  than  ia 
accorded  to  operatives  and  common  laborers.     But  W/u^^ 
a  right  to  demand  does  not  always  carry  along  with 
it  an  ability  to  secure :  in  this  case  it  does,  through 
the  reduction  of  numbers  which  these  obstacles  at 
the  entrance  occasion,  and  the  consequent  weakness 
of  competition.     To  put  a  boy  apprentice  to  a  trade, 
requires   on  the  part  of  the  parents  a  foresight,  an 
ability  to  get  on  without  his  immediate  help,  andJ/iaccS  ^^i-^ 
sometimes  an  amount  of  money  for  his  board  and 
clothes,  which  all  parents  do  not  possess ;  and  con- 
sequently, the  number  of  skilled  artisans,  who  must 
learn  when  they  are  young  if  at  all,  are  relatively 
few  compared  with  common  laborers,  and  are  able 
to  realize  a  much  higher  rate   of  wages  than  they. 
In  the  professions,  if  we   confine  our  attention  to -7 
those  persons  who  are  thoroughly  trained  for  them, 
we  shall  find  a  higher  rate  of  compensation   still, 
and   one   made    higher    on    the    same    principles; 
although  we    must    here    bear   in    mind  the   coun- 
ter-working influences  which    tend  to  increase  theLt.,,.:;. , 
competition  in  the  professions,  namely,  the  respecta-^^  -i-^- 
bility  which  attends  them,  the  desire  of  knowledge 
for  its  own  sake  which  is  gained  in  connection  with 
them,  the  instruction  wholly  or  in  part  gratuitously 


144  ELEMENTS  OF  POLITICAL  ECONOMTt 

offered  to  those  in  course  of  preparation  for  them,  and 
the  desire  to  do  good,  without  regard  to  pecuniary 
reward,  which  actuates  many  who  enter  upon  them. 

•  ..  ^  ^  3.  The  constancy  or  inconstancy  of  employment 
'  is  a  consideration  that  affects  wages.  If  the  em- 
ployment be  such  that  it  can  only  be  carried  on 
during  nine  months  of  the  year,  the  wages  of  the 
day  or  month  will  be  greater  than  they  would  be  if 

''^^■^^^'^^^  it  could  be  carried  on  during  the  twelve  months. 
The  laborer  looks  to  the  aggregate  earnings  of  the 
year,  and  will  hardly  take  up  a  trade  which  affords 
employment  but  a  part  of  the  time,  unless  some 
compensation  can  be  found  in  the  higher  wages  for 
that  time.  This  is  the  chief  reason  why  the  day's 
wages  of  the  mason  and  the  house-painter,  in  this 
climate  at  least,  are  higher  than  those  of  the  car- 
penter or  smith.  The  coachman,  also,  may  stand 
by  his  horses  half  the  day  or  night,  with  no  call 
for  his  services,  and  must  have,  therefore,  a  propor- 
tionably  higher  fare  from  those  whom  he  does 
transport.  In  general,  it  is  found  that  men  prefer 
a  constant  employment  with  a  lower  rate  of  wages, 
than  an  inconstant  one,  with  a  prospect  of  higher 
pay  for  the  particular  jobs  actually  done,  and  be- 
cause they  prefer  that,  those  who  take  up  with  the 
other  are  able  to  secure  a  higher  rate  of  pay  in  their 

^Xr  {^^u, l^ss  eligible  avocation.  Counter  working  this,  how- 
ever, are  the  desires  which  many  men  have,  for 
intervals  of  leisure  in  their  business ;  and  the  op- 
portunity to  make  these  intervals  subservient  to 
another  branch  of  business  or  means  of  livelihood. 

fi^^j^^  4.     The  amount  of  trust  involved  affects  wages. 

Men  in  responsible  positions  secure  a  higher  rate  of 


ON  LABOR.  145 

pay  for  their  services  than  can  be  accounted  for,  ex- 
cept by  a  reference  to  the  unwillingness  of  people 
to  intrust  great  interests  to  others,  unless  they  are 
men  of  established  character  for  probity.  Such 
men,  men  who  combine  all  the  other  requisites 
for  an  important  post,  with  a  well-known  honesty, 
are  comparatively  rare;  and,  when  they  are  found, 
will  receive  a  very  high  compensation  for  their  ser- 
vices. Treasurers  of  corporations,  cashiers  of  banks, 
and  holders  of  trust-funds  generally,  are  examples  in 
point.  Shall  w^e  say,  then,  that  men  offer  their  hon- 
esty in  the  market,  as  they  offer  their  skill,  and  are 
paid  for  the  one  as  for  the  other  ?  No !  Their  skill ^ih-toJatu  ^ 
has  been  acquired  to  sell,  and  for  no  other  reason ;  .^:^  1 
but  their  honesty,  if  it  be  genuine,  has  another  basis 
altogether;  and  he  who  is  honest,  simply  because 
honesty  is  the  best  policy,  is  not  honest  at  all !  The 
very  characteristic  of  honesty  is  that  it  cannot  be 
bought !  It  has  a  moral,  and  not  a  mercantile  foun- 
dation. In  point  of  fact,  a  man  who  has  the  full 
confidence  of  his  fellow-citizens,  as  an  honest  man, 
and  at  the  same  time  all  the  other  qualifications 
requisite  for  a  post  of  high  pecuniary  trust,  is  in 
position,  partly  on  the  ground  of  his  honesty,  to 
render  a  high  service,  and  will  receive  for  that  ser- 
vice a  high  reward ;  but  I  protest,  in  the  name  of 
morals,  against  the  notion  that  honesty  is  a  market- 
able article:  it  is  rather  an  underlying  element  of 
moral  character,  which  fits  men  indeed  to  render 
certain  services,  but  the  honesty  is  maintained,  not 
for  the  sake  of  the  service,  but  has  an  independent 
basis  of  its  own.  So,  also,  most  people  would  pre- 
fer a  deeply  religious  man  for  a  preacher  and  spir- 


146  ELEMENTS   OF  POLITICAL  ECONOMY. 

itual  guide,  but  it  is  a  perversion  of  language  to 
maintain  that  in  rendering  these  services  a  clergy- 
man sells  his  religion.  It  is  true  that  he  sells  ser- 
vices to  the  appropriate  rendering  of  which  his 
personal  piety  contributes  one  element;  but  the 
piety  is  not  nourished  for  the  sake  of  the  services, 
but  for  its  own  sake,  and  it  must  not  be  confounded 
with  that  which  is  sold.  Accordingly,  while  the 
clergyman's  vocation  is  sacred,  and  belongs  to  the 
sphere  of  religion,  his  salary  belongs  to  the  sphere 
of  exchange,  and  its  determination  is  wholly  a  busi- 
ness transaction.  This  distinction  ought  to  be  bet- 
ter understood  than  it  is ;  and  both  clergymen  and 
people  need  to  be  reminded  that  the  spiritual  things 
belong  to  one  sphere,  and  the  carnal  things  to  an- 
other. The  amount  of  a  clergyman's  salary,  and  the 
time  and  mode  of  its  payment,  are  matters  of  pure 
business ;  and  the  clergyman  himself  is  to  blame  if 
he  does  not  attend  to  them,  and  insist  on  them,  on 
business  principles. 

5.  The  probability  of  success  in  any  employment 
is  a  circumstance  that  has  some  influence  on  the 
rate  of  wages  paid  in  it,  through  the  action  of  this 
probability  on  the  numbers  of  those  who  enter  upon 
it.  If  success  is  problematical,  fewer  will  engage  in 
such  a  business,  and  those  who  do  engage  in  it  and 
succeed,  will  reap  a  very  high  reward.  Ten  boys, 
for  example,  put  to  the  blacksmith's  trade,  ordinary 
capacity  being  presupposed,  will  probably  every  one 
succeed  in  becoming  a  tolerable  workman  ;  but  of 
ten  boys  of  the  same  capacity  put  apprentice  to  an 
engraver,  probably  not  over  three  would  ever  reach 
any  high  degree  of  skill  and  success ;  and  therefore, 


ON  LABOR.  147 

fche  pressure  of  numbers  will  be  felt  much   more  in 
the  former  than  the  latter  art.     So  also,  those  who 
take  jobs  by  contract,  and  who  consequently  assume  W''*'^-'—- 
some  risks,  are  usually  paid   at  a  higher  rate  than   " 
those  who  do  work  by  the  day.     It  is  true  that  this  b^  p^a^v-^ 
is  owing  partly  to  the  fact  that  the  contractor  com-  O.MMrrf.vU- 
monly  uses  his  own  capital,  and  must  therefore  be  ^^v**-^-*-  /'^ 
paid   profits  as  well    as  wages,   and   also   that   the       '^''■*y^' 
wages  of  superintendence  are  due  to   him  as  well 
as   ordinary   wages ;    still  there   is    a  residuum   of 
difference  which  can  only  be  accounted   for  by  the 
risk   he    runs    of    a  successful    issue.     The    differ* 
ence   in  wages  from   this  fifth    cause  of  variation,  ^"^"^^^^^ 
would  be  greater  than  it  is,  were  it  not  for  the  over-     '^ 
weening  confidence  which  most  men  have  in  their^^^*^^^-^"^ 
own  good  luck.     This  confidence  is  seen  in  the  rush  ^^^-^'^- 
which  is  always  made  for  newly  discovered  mining 
regions,  and  in  the  facility  with  which  even  yet  lot- 
tery tickets  are  sold.     It  is  demonstrable  beforehand, 
on  the  doctrine  of  chances,  that  no  lottery  ticket  is 
worth  so  much  as  it  is  sold  for,  and  yet  men  buy  on 
in   spite  of   the   demonstration ;  and   experience  in 
California  and  at  Pike's  Peak,  has  sadly  taught  how 
excessive  was  the  confidence  in  their  own  success  of 
the  men  who  flocked  to  those  new  El  Dorados. 

6.  Custom  and  prejudice  and  fashion,  have  some-  4.6^*^^' 
thing  to  do  with  the  determination  of  wages  in  some  ^' 
departments.  Custom,  especially  in  former  times, 
has  been  very  operative.  The  current  fees  of  law- 
yers and  physicians  have  been  largely  dependent  on 
custom,  competition  merely  coming  in  to  decide 
how  many  such  fees  a  man  should  get,  rather  than 
lessening  the  amount  of  each  particular  fee.     Cus* 


.e.«.  .a 


:.:h 


148  ELEMENTS    OF  POLITICAL  ECONOMY. 

torn  determines  the  rates  when  men  take  farms  on 
shares.  But  competition  is  now  breaking  down 
custom  in  all  directions,  and  will  soon,  I  think, 
reign  supreme  over  the  economic  field.  Prejudice 
is  closely  allied  to  custom,  and  has  some  voice  still 
in  adjusting  wages,  as  may  be  seen,  perhaps,  in  wo- 
men's wages,  crowded  down  to  a  point  unreasonably 
low,  as  compared  with  the  wages  of  men.  Custom 
and  prejudice  may  yield  the  field,  but  fashion,  which 
is  one  form  of  competition,  will  always  have  an 
influence  over  wages.  They  who  lead  the  styles  in 
any  department  whatsoever,  will  always  offer  their 
services  to  society  at  an  advantage  to  themselves, 
and  their  rate  of  compensation  will  be  legitimately 
higher  than  the  average  rate. 

7.  Legal  restrictions  and^  voluntary  associations 
are  another  cause  acting  on  wages,  by  acting  on  the 
supply  of  laborers.  Laws  inhibiting  or  promoting 
immigration,  laws  appointing  the  fees  and  salaries 
of  officials,  tariff  laws,  whether  prohibitory  or  only 
restrictive,  unequal  taxation,  and  so  on,  all  have  an 
agency  in  adjusting  wages.  Governments  are  com- 
ing, however,  much  more  freely  than  formerly,  to 
leave  everything  except  the  wages  of  their  own  ser- 
vants, and  those  things  which  they  choose  to  tax,  to 
the  simple  and  safe  action  of  supply  and  demand. 
The  guilds  of  the  Middle  Ages,  and  the  trades' 
unions  of  our  own  day,  are  examples  of  voluntary 
associations  for  the  sake  of  regulating  the  wages  of 
the  members  by  combined  action.  The  restrictions 
in  the  old  guilds,  limiting  the  number  of  appren- 
tices to  each  artisan,  determining  the  time  a  man 
should  serve  before  he  could  become  a  master,  and 


ON  LABOR.  149 

SO  on,  were  very  onerous,  and  have  mostly  passed 
away.  The  trades'  unions  in  this  country  cannot  be  S^M^^ 
commended,  because  they  tend  to  destroy  the  free-/^t-vi-*-w 
dom  of  personal  action,  and  bring  all  workmen  to 
one  level  of  wages.  The  spirit  of  Political  Econ- 
omy, which  is  the  spirit  of  freedom,  is  against  such 
associations  for  such  purposes.  If  any  man  has  a 
service  to  render,  let  him  offer  it  freely,  and  make  the 
best  terms  he  can  with  whoever  wants  it. 

Having  looked  at  the  principles  that  determine 
the  compensation  of  skilled  labor,  and  also  at  some 
causes  tending  to  vary  the  wages  both  of  skilled 
and  common  labor,  we  pass  now  to  a  consideration 
of  those  principles  more  particularly  applicable  \o\^'^^f^'' 
the  wages  of  common  labor.  All  value,  as  we^^'-*^'^^^ ' 
know,  is  a  resultant  of  two  desires  and  two  efforts, '*'^*'^'^'^^ 
and  is  variable  by  any  variation  of  either  desire  or 
either  effort.  When  the  laborer  offers  a  series  of 
efforts  to  another  person,  he  does  so  in  virtue  of  a 
desire  for  something  which  that  other  person  has  to 
give,  for  food,  clothing,  money  ;  and  the  other  person 
has  a  desire  for  the  efforts  of  the  laborer,  and  is 
willing  to  give  in  return  the  food,  clothing,  money, 
or  whatever  it  may  be.  The  more  laborers  there  are 
who  offer  their  service  to  this  person,  the  more  likely 
he  is  to  obtain  the  service  at  a  cheap  rate,  since 
there  is  a  competition  among  the  laborers  to  secure 
that  food,  clothing,  money,  and  so  on,  which  he 
offers  in  return  for  the  service :  the  more  persons,  on 
the  other  hand,  who  offer  food,  clothirtg,  money,  and 
so  on,  to  the  laborers  there  present,  the  more  likely 
are  the  latter  to  receive  a  high  rate  for  their  efforts, 
since  there  is   a  competition  among  employers  to 


150  ELEMENTS  OF  POLITICAL  ECONOMY. 

secure  such  efforts.  The  number  of  employers  and 
the  amount  of  that  which  they  offer  as  return  for 
such  efforts,  constitutes  the  demand  for  laborers; 
the  number  of  laborers  willing  to  render  service  fjor 
what  is  thus  offered  in  return,  constitutes  the  supply 
of  labor :  the  cuiTent  rate  of  wages  of  common 
labor  is  determined  by  the  adjustment,  that  is,  the 
equalization  of  the  demand  and  supply.  In  what 
we  have  said  thus  far  in  relation  to  wages,  we  have 
referred  chiefly  to  causes  acting  on  the  supply  of 
laborers,  rather  than  on  the  demand  for  labor:  we 
must  now  look  in  the  other  direction,  and  anticipate 
the  discussions  of  the  next  chapter,  so  far  as  to  say, 
that  all  capital  constitutes  an  im.mediate  and  pressing 
demand  for  labor.  Whoever  desires  a  service  which 
a  laborer  can  render,  and  lays  by  something  to  pay 
for  that  service,  creates  that  instant  a  demand  for 
labor;  and  especially,  whoever  accumulates  raw  ma- 
terials which  laborers  are  to  work  up,  builds,  buys, 
or  keeps  machinery  which  laborers  are  to  tend,  or 
puts  himself  in  position  to  suffer  loss  by  the  owner- 
ship of  lands,  ships,  or  other  property  whatsoever, 
unless  laborers  be  employed  to  make  them  produc- 
tive, creates  thereby  an  instant  demand  for  labor. 
All  such  accumulations  whatsoever,  destined  in  the 
owner's  mind  to  be  employed  in  further  production, 
all  implements,  buildings,  and  improvements,  de- 
signed to  assist  labor,  and  raw  materials  which  labor 
must  work  up,  are  capital;  and  capital  must  be  con- 
stantly united  with  labor,  or  the  owners  will  suffer 
an  inevitable  loss.  The  presence  of  capital  any- 
where constitutes  a  demand  for  labor.  The  more, 
capital  there  is  anywhere,  the  stronger  the  demand 


ON  LABOR.  151 

for  \a])or;  and  capital,  therefore,  is  the  poor  man's /^<^^^<^* 
best  friend.     Mr.  Carey  regards  the  laborer  as  at  a^^^    *^ 
disadvantage   compared  with   capital,   because   the  ^o-^-^^  > 
laborer   must   at   once   dispose   of   his   product,   or 
starve ;  which  seems  to  me  a  superficial  view  of  the 
relation,  because  capital  submits  to  an  instant  loss 
when  it  declines  to  employ  labor.     Capital  does  not 
like  to  lose  its  profit  any  more  than  the  laborer  likea 
to  lose  his  bread.    In  a  true  and  general  view,  the  one 
is  under  just  as  much  pressure  to  employ  laborers,  as 
the  other  to  get  employment.     They  come  together 
of  necessity  into  a  relation  of  mutual  dependence, 
which   God  has  ordained,  and  which,  though  man 
may  temporarily  disturb  it,  he  can  never  overthrow. 

Labor,  then,  takes  jtself  to  thejnarket  to  effect  an 
exchange  with  capital.     It  is  only  capital  that  em^Ci.fJ*LoH 
ploys  labor.    Now,  the  terms  of  the  exchange,  that  isc**vc  ^Ui^ 
to  say,  the  average  rate  of  the  wages  of  common  la-   '    -    • 
bor,  will  depend  on  the  number  of  laborers  compared />  _. 
with  the  amount  of  capital  there  present.     The  ag-^;-^^  /?j 
grcgate  of  all  the  forms  of  capital  there  present,  helps^;^^:^;^.,^**^ 
to  make  up  in  the  mind  of  the  capitalist  his  motive  for>*^  '--'-^'";>- 
employing  labor,  because  the  more  he  has  invested'  ''"^T^ 
in   buildings,  machinery,  and   materials,   the   more 
urgent  is  the  necessity  to  employ  laborers,  in  order 
to  make  the  investment  productive ;  although  only  a 
part  of  the  capital  is  free  to  be  offered  in  payment 
of  wages.     Demand  for  labor  is  constituted,  strictly  ,^,(^c4^  i 
speaking,  by  that  part  of  the  capital  which  is  avail-s'-^  /^^-# 
able  to  be  offered  in  the  form   of  wages,  but  it  is 
clear,  that,  as  a  rule,  demand,  that  is,  the  portion  of 
capital   designed  for  the    payment  of  wages,   may 
increase  under  the  influence  of  increased  desire  for 


152 


ELEMENTS   OF  POLITICAL  ECONOMY. 


laborers,  and  an  increased  desire  for  laborers  is  a 
necessary  consequence  of  the  increase  in  the  aggre- 
gate of  capital.  Whether  the  portion  designed  for 
wages  will  increase  or  not,  on  an  increase  of  capital, 
will  depend  on  the  action  of  laborers.  It  is  cer- 
tainly possible  that  capital  may  go  on  increasing, 
while  the  wages-fund  (the  portion  designed  for  wa- 
ges) may  remain  stationary,  or  even  diminish,  owing 
to  the  competition  of  an  increased  number  of  labor 
ers,  and  the  diminished  compensation  going  to  each- 
The  number  of  laborers  remaining  the  same,  and 
intelligently  comprehending  their  position,  the  size 
of  the  wages-fund  will  necessarily  keep  pace  with 
all  increase  of  aggregate  capital.  This  point  of 
connection  between  the  two,  this  influence  of  the 
whole  capital  on  the  desire  for  laborers,  and  con- 
sequently on  the  wages-fund,  is  a  point  which  I  do 
not  remember  to  have  seen  noticed  by  anybody,  yet 
which  is  obviously  of  much  importance  in  unfolding 
the  relations  of  labor  to  capital.  The  wages-fund 
is  not  to  be  conceived  of  as  rigidly  determined  in 
amount  by  employers  beforehand,  because  these  in- 
tend to  get  appropriate  labor  for  the  least  that  they 
can,  and  only  to  pay  more  whenever  they  must;  nor 
is  it  to  be  conceived  of  as  a  stock  always  entirely 
created  already,  because  employers  expect  that  the 
wages  will  ultimately  come  out  of  the  products  of 
the  present  work ;  nevertheless,  so  far  as  industrial 
enterprises  are  carried  on  intelligently,  whether  wages 
are  provisionally  advanced"  out  of  an  existing  fund  to 
be  replaced  from  the  current  products  or  await  the 
realization  of  these  products,  there  is  in  purpose  and 
effect  what  has  been  called  a  wages-fund,  and  the 


ON  LABOR.  153 

current  rate  of  wages  of  common  labor  at  any  time 
and  place  is  determined  by  the  division  of  this 
wages-fund  among  all  the  laborers  who  compete  for 
it.  If  the  laborers  are  few  relatively  to  the  want  for 
them  expressed  by  the  wages-fund,  the  rate  will  be 
high  ;  if  many,  the  rate  will  infallibly  be  low. 

We  see  now  what  we  are  to  think  of  many  reme- 
dies popularly  recommended  for  low  wages.     When 
wages  are  very  low  in  any  country,  or  in  any  depart-^'*'''^'^^*^  ' 
ment  of  labor,  there  are  some  who  think  that  the  "*">'*^* 
government  ought  to    interfere  to    better  them,  at 
least  to  designate  a  minimum  below  which  wages 
shall  not  go ;  others  propose  that  strong  public  opin- 
ion be  brought  to  bear  upon  employers,  to  induce 
them  to  give  sufficient  wages ;  others  still  maintain 
that  combinations  among  the  workmen  themselves, 
for  the  purpose  of  dictating  the  rate  of  wages  to  the  ^ 
employers,  would  be    an    appropriate   and  effective ^^'^^^ 
remedy.     Every  one  of  these  is  a  delusion,  and  so  r^^^-^^'  '*^ 
is  every  other  proposal  that  ignores  the  law  of  wages 
just   established.      That   which    pays   for   labor   in  ^'^^"^ '• 
every  country,  is  a  capital  created  or  in  process  of 
creation,  which  cannot  be  increased  by  the  proposed 
action  of  government,  nor  by  the  influence  of  public 
opinion,  nor  by  combinations  among  the  workmen 
themselves.    There  is  also  in  every  country  a  certain 
number  of  laborers,  and  this  number  cannot  be  di- 
minished  by   the   proposed   action   of  government, 
nor  by  public  opinion,  nor  by  combinations  among 
themselves.     There  is  to  be  a  division  now  among 
all  these  laborers  of  the  portion   of  capital  in  the 
wages-fund  there.    Suppose  there  has  been  free  com- 
petition on  both  sides,  and  that  the  average  rate  of 


154  ELEMENTS  OF  POLITICAL  ECONOMY. 

wages  as  thus  determined,  is  one  dollar  per  day  foi 
each  laborer.  Suppose  that  everybody  thinks  that 
this  is  insufficient,  and  that  government  accordingly 
I  iUe^r^  ^  ^  issues  a  decree  that  wages  thereafter  must  be  one 
li^^r^^fr^*^^  dollar  and  a  half  per  day  to  each  laborer.  This  de- 
^*j<^-»^-*^  cree  has  no  tendency  to  increase  the  size  of  the 
v/^^^f*^ wages-fund;  that  is  determined  by  the  general  pro- 
ri,^'  ductiveness  of  labor,  and  by  the  division,  under  free 

competition,  between  wages  and  profits ;  if  the  de- 
cree, therefore,  were  carried  out,  as  it  never  could  be, 
the  result  would  be  that  only  two  thirds  of  the 
laborers  there  present  could  be  employed  at  all, 
and  the  remaining  third  must  be  supported  by  char- 
ity, or  starve.  The  wages-fund  is  only  sufficient  to 
give  to  all  the  laborers  a  dollar  a  day,  and  if  the 
government  enforces  a  new  distribution  at  a  rate 
one  third  higher,  then  one  third  of  the  laborers  can- 
not be  employed  at  all.  There  is  no  use  in  arguing 
against  any  one  of  the  four  fundamental  rules  of 
arithmetic.  The  question  of  wages  is  a  question  of 
Division.  It  is  complained  that  the  quotient  is  too 
;»^7'^  .^,^^^,^  small.  Well,  then,  how  many  ways  are  there  to 
^  Afi^^u-tw  ^^^^  ^  quotient  larger?  Two  ways.  Enlarge  your 
;?  dividend,  the  divisor  remaining  the   same,  and  the 

quotient  will  be  larger  :  lessen  your  divisor,  the  divi- 
dend remaining  the  same,  and  the  quotient  will  be 
larger.     All  accessions  to  capital,  all  investment  of 
profits  in  an  enlarged  business,  all  saving  from  ex- 
^'*+::^ '^^^^penditure  for  the   sake   of  further   production,  will 
(^^^^I't^lA^  increase  the  dividend,  and,  the  number  of  laborers 
h^tK.H^    continuing   as  before,  the  rate  of  wages  will  rise. 
Or,  if  there  be  no  accessions  to  capital^  the  wages- 
fund  consequently  standing  as  before,  and  the  num- 


^^*r 


ON  LABOR.  155 

ber  of  laborers  be  diminished,  as  by  emigration  to  ^^^"^  ' 
new  fields  of  effort,  or  by  enlistment  in  armies,  the'''^'^  '>*- 
divisor  will  be  lessened,  and  the  rate  of  wages  will      ''''**-*^ 
rise.     The  reversed  suppositions  will  give,  of  course, 
reversed  results,  and  wages  will  go  down. 

Though  not  in  the  way  proposed,  there  is  a  way  ji^  ^^^ 
in  which    government    may   act   most    beneficialiy^^^!!^]^^^^ 
upon  this  matter  of  wages.     By  faithfulness  to  its  /^  iv-^ 
peculiar  trust,  that  is  to  say,  by  making  the  rights 
of  person  and  property  as  secure  as  possible,  it  gives  f/#<«^ 
an  impulse  to  enterprise,  a  spur  to  industry,  makes'***^^''^^ 
the  desire  of  accumulation  effective,  and  thus  i^idi-v^fT^ 
rectly  but   most  powerfully  contributes  to  the   in-  ^"^ 
crease  of  capital,  to  the  fund  out  of  which  wages 
are  paid.     Also,  by  fostering  the  means  of  educa- 
tion,  and  by  the  diffusion  of  knowledge  among  all 
classes,  government  acts  beneficially  upon  the  labor- 
ers, to  make  them  intelligent,  to  impart  to  them  that 
character  and   self-respect  which  fits  them,  in  ex- 
changing services  with  capital,  to  demand  and  secure 
their  full  rights  in  the  exchange.     It  is  not  denied 
that  capital  takes  advantage  of  the  ignorance   and 
immobility  of  laborers,  and  sometimes  secures  theii;5n'vvtX^--~^ 
services  at  a   less  rate  than   the  just  relations  of  ^^^  r«u/^ 
capital  to  labor  then  and  there  would  indicate,  but*^^'^*^^*^ 
the  remedy  for  this  is  not  in  arbitrary  interferenceT/-  V,yO^«^ 
of  government  in  the  bargain,  but  in  the  intelligence 
and  self-respect  of  the  laborers  which  shall  fit  them 
to  insist  on  a  just  bargain.     In  this  whole  sphere  of 
exchange,  the  just  and  comprehensive  rule   always ^^'^'^'^^ 
will  be,  that  when  men  exchange  services  with  each 
other,  each  party  is  bound  to  look  out  for  his  own  ^^ji^^  - 
interest,  to  know  the  market-value  of  his  own  ser-  '4,,  f^  ,.,^ 


O  0-^  Pteui^*^ 


156  ELEMENTS  OF  POLITICAL  ECONOMY. 

vice,  and  to  make  the  best  terms  for  himself  which 
he  can  make.     Capital  does  this  for  itself,  and  la- 
^.jv^^<vy.^)^v  borers  ought  to  do  this  for  themselves,  and  if  they 
c^\  c«^v,^>  *  V  are  persistently  cheated  in  the  exchange,  they  have 
(^(u^«j^^''      nobody   to    blame    but    themselves.       Government 
,vwD>t-«^''     should    give    them    all    facilities    for    intelligence: 
they  should  give  themselves  a  character,  and  cher- 
ish a  hearty  self-respect,  which  there  is  nothing  in 
their  position  to  diminish  :  towards   such  laborers, 
capital  occupies  no  vantage  ground  in  an  exchange 
of  mutual  services. 

Public  opinion  can  do  something  towards  better- 
ing the  wages  of  labor,  in  countries  where  they  are 
(v^x^w  ^v.juv  low,  by  organizing  means  to  assist  the  laborers  in 
distributing  themselves  at  points  where  their  ser- 
\  ,  ^vices  are  most  in  demand.  Societies  in  our  sea- 
board cities,  whose  object  it  is  to  aid  immigrants  to 
pass  on  from  those  cities  where  labor  is  very  abun- 
dant, to  the  country  towns  and  to  the  West,  where  it 
is  relatively  much  less  so,  are  commendable  in  their 
purpose  and  spirit.  So  also  are  emigration  societies, 
in  countries  situated  as  Ireland  has  been,  where  cen- 
turies of  misgovernment  combined  with  centuries  of 
ignorance,  produced  a  temporary  pressure  of  popu- 
lation on  the  means  of  support.  Where  such  pres- 
sure exists,  as  it  does  also  in  China,  it  is  a  good 
thing  for  public  opinion  to  be  favorable  to  emigra- 
tion to  newer  and  more  fortunate  countries,  and 
liberally  to  assist  in  the  distribution  of  labor  to  those 
points,  wherever  they  may  be,  where  capital  is  ready 
and  anxious  to  employ  it. 

It  may  surprise  some  who  are  familiar  with  books 
on  Political  Economy,  that  I  do  not  here  adduce  the 


ON  LABOR.  157 

influence  of  public  opinion  in  restraining  population 
as  favorable  to  wages,  and  inveigh  against  the  force 
of  that  spring  of  population  which  the  Creator  has 
coiled  up  in  the  nature  of  man,  as  compared  with 
the  weakness  of  that  power  by  which  the  earth  pro- 
duces sustenance  for  man.     Mr.  Malthus,  and  other  ^tJxL^ 
economists,  have  discussed  at  length  the  tendency  in^«-.»f^<X 
the  law  of  human  fecundity  to  outstrip  in  its  results 
the  law  of  diminished  returns  from  land ;  and  have'^-c^.-^-^ 
expressed  an  apprehension  that  the  time  may  come^  f>J^  < 
when  the  earth  shall  be  unable  to  support  her  chil- 
dren.   They  have  enlarged  upon  the  well-known  fact 
that  in  the  United  States  population  doubles  every 
twenty-five  years ;  and  have  calculated  that,  at  this 
rate,  the  inhabitants  of  every  country  would,  in  the 
course  of  five  centuries  increase  to  above  a  million 
times  their  previous  number ;  that  the  population  of 
England,  for  example,  would,  at  this  rate,  in  that 
time,  exceed  twenty  million  millions,  ^  a  population 
which  could  not  get  standing-room  there.     Such  a 
rate  of  increase  certainly  needs  to  be  checked ;  and 
Mr.  Malthus  divides  the  checks  to  population  into 
the  positive  and  the  preventive.     'I^hejirsst  increase  U'^^-i'^ 
the  number  of  deaths,  the  second  diminish  the  num- 
ber  of  births.     The  principal  positive  checks  are  war,'^*^|^^^ 
famine,  and  disease ;  the  principal  preventive  check,,^^^^^^ 
is  prudence.     Of  course  it  is  better  that  the  check^A'^*-^*;^^ 
which  limits  fecundity  should  come  into  play,  rathey^^r*^*'^ 
than  those  which  decrease  longevity ;  and  these  writ*^^  '^■'^ 
ers  are  at  pains  to  inculcate  upon  the  laboring  classes  ^^^''^  -* 
prudence  in  marrying,  and  temperance  after  marriage.^^^'^^'f;^'^^^ 
These  discussions  are  interesting  in  themselves,  and^^*^ 
have  attracted  much  attention ;  but  I  cannot  regard^*^"^S 


^f  AvXi^^tH^jU^    L^-tu^w 


158  ELEMENTS  OF  POLITICAL  ECONOMY. 

them  as  particularly  pertinent  to  discussions  on 
wages.  God  has  endowed  mankind  with  a  strong 
impulse  towards  procreation.  But  experience  has 
shown  that  it  is  not  too  strong  for  the  purposes  for 
which  it  was  given.  Experience  has  also  shown 
that,  as  society  advances,  and  men  come  more  and 
more  under  the  influence  of  reason,  and  affection,  the 
preventive  check  comes  silently  and  effectually  into 
operation.  Experience  has  shown  also  that  food  and 
comforts  have  more  than  kept  pace  with  the  stride 
f  of  population ;  since  the  inhabitants  of  the  world,  as 

'^^^ mt^^u^  whole,  were  never  so  well  fed  and  clothed  and 

^j^CtMiL.  ^^^^^^  ^s  now.  The  abstract  antagonism  of  the  law 
'  'c'  of  the  increase  of  population  with  the  law  of  the 
increase  of  food  is  admitted ;  but  he  who  is  author 
of  the  laws  is  author  also  of  natural  counter-work- 
ings of  them  ;  so  that  a  practical  tendency  towards 
their  coming  into  conflict  is  denied.  Each  human 
being  is  as  much  constituted  by  Nature  to  receive 
services  as  to  render  them,  and  each  is  naturally  able 
to  become  a  capitalist ;  economical  laws  present  no 
obstacles  to  all  men's  becoming  rich  ;  most  men  are 
unwilling,  some  are  unable,  to  fulfill  the  moral  con- 
ditions of  getting  rich ;  while  scarcity  of  food  has 
been  caused  much  more  by  the  maladministrations 
of  government  than  by  the  law  of  population. 
But  will  not  strikes  accomplish  that  for  the  raising 

>t  ly  of  wages  which  neither  government  nor  public  opin- 

^~\       ion  can  effect?     A  strike  is  a  combination  among 

workmen  for  an  increase  of  wages.     They  agree  to 

fr*^^^  •  Ftop  work  altogether  until  their  employers  shall  com- 
ply with  their  terms,  and  raise  their  wages  to  a  cer- 
tain definite  sum.     It  is  not  to  be  denied  that  work- 


ON  LABOR.  159 

men  thus  possess,  under  many  circumstances,  a  very 
considerable  reserved  power  which  they  can  bring  to 
bear  upon  their  employers.  When  the  processes  of 
production  are  going  briskly  forward,  when  the  man- 
ufactory is  thoroughly  furnished  with  competent 
hands,  and  profitable  orders  are  in  waiting,  it  is  no 
laughable  thing  for  the  owner  to  be  told,  of  a  cloudy 
morning,  that  his  hands  have  all  stopped  work,  and 
refuse  to  lift  a  finger,  until  he  shall  agree  to  pay  them 
wages  at  a  rate  which  they  themselves  dictate.  Of 
course,  his  first  impulse  is  to  discharge  every  man  of 
them,  and  endea^ror  to  fill  his  factory  with  new  hands 
But  this  he  cannot  always  do.  At  best  it  will  take 
time.  Meanwhile  his  wheel  or  engine  must  be  idle, 
customers  be  lost,  orders  unfilled,  and  profits  no- 
where. And  so,  many  an  employer  has  surrendered 
to  a  strike,  when  he  felt  that  it  was  all  unjust,  rather 
than  undergo  a  still  greater  loss.  It  is  admitted  that 
workmen  may  sometimes  strike  and  gain  their  point, 
but  it  is  none  the  less  true  for  all  that,  that  strikes 
are  false  in  theory  and  pernicious  in  practice ;  that 
they  spring  from  utter  misapprehension  of  the  true 
principles  of  wages ;  that  they  embitter  relations 
between  employers  and  employed  which  ought  to  be 
cordial  and  free ;  and  that  they  rarely  or  never  are 
permanently  advantageous  to  the  workmen  them- 
selves. 

In  the  first  place,  then,  strikes  are  false  in  theory. '^r;,,^^  ^:^  7 
It  is  a  very  old  adage,  that  it  takes  two  to  make  a/t^^'V 
bargain.     Express  this  in  the  language  of  Political  iw«  trwv-^ 
Economy,  and  it  will  take  this  form:    When  two*T^>»^^«^ 
men    have   mutual   services  to   exchange,  let   them 
come  to  a  fair  agreement  as  to  the  terms  on  which 


160  ELEMENTS  OF  POLITICAL  ECONOMY. 

they  wiJl  exchange.  Certainly,  let  each  make  the 
best  terms  he  can,  but  let  the  bargain  always  be  free. 
If  one  party,  who  happens  to  have  the  power  to  do 
it,  uses  compulsion  upon  the  other,  it  ceases  to  be  a 
bargain  at  all,  and  becomes  a  sort  of  robbery.  If, 
driving  with  my  good  horse  along  a  lonely  road,  I 
meet  another  man  driving  an  inferior  one,  and  he, 
being  the  stronger  man,  compels  me  to  exchange 
horses,  it  may  be  all  very  well  for  him,  but  I  protest 
that  it  is  no  bargain.  It  is  robbery.  Now,  workmen 
bring  a  certain  valuable  service  to  the  market,  just 
such  a  service  as  the  capitalist  wants,  and  he  has  to 
offer  just  such  a  service  as  they  want,  namely,  wages. 
Now  let  them  come  to  a  free  and  fair  agreement  on 
the  terms  of  their  exchange.  Let  the  workmen  by 
all  means  make  the  very  best  terms  they  can ;  let 
them  insist  to  the  last  penny  on  all  which  they  can 
get  elsewhere,  for  the  value  of  their  service  is  deter- 
mined, as  the  value  of  every  other  service  is  deter- 
mined, by  what  it  will  bring.  Let  the  employer  do 
the  same.  Let  a  fair  bargain  be  struck.  There  is 
no  objection  to  this  kind  of  striking;  and  the  more 
intelligence  and  skill  and  self-respect  a  workman  has, 
the  better  prepared  he  is  to  strike  the  bargain  and 
secure  his  just  due.  If  the  employer  will  not  yield 
him  this,  let  him  have  done  with  it  at  once,  and  go 
elsewhere.  Or,  if  a  just  bargain  has  been  struck, 
and  afterwards  circumstances  shall  so  alter  that  he 
thinks  he  can  rightfully  demand  more,  let  him  frankly 
demand  it,  remembering  always  that  it  is  an  ex- 
change he  has  to  do  with,  and  that  it  takes  two  to 
make  a  bargain.  If  he  does  not  get  for  his  service 
what  he  thinks  he  ought  to  get,  let  him  quit     H« 


ON  LABOR.  161 

has  a  perfect  right  to  quit.     All  this  is  legitimate 
and  fair  and  above  board. 

But  a  strike  is  wholly  different.  This  brings  com-  /X  c^V^ 
pulsion  into  play.  A  combination  among  workmenf>K*^  ^jucJ^ 
to  leave  an  employer  in  the  lurch,  and  especially  a^^^>-i>^'«>J 
combination  which  forces  into  its  ranks  by  cajoling''V'*'»^'^'V<**^ 
or  menaces,  those  who  are  unwilling  to  join  it,  is  of 
itself  a  confession  of  the  injustice  of  the  claim.  If 
the  claim  be  just,  there  is  no  occasion  to  extort  it. 
If  the  value  of  the  service  rendered  be  equal  to  the 
sum  demanded,  if  this  can  be  obtained  elsewhere, 
there  is  no  need  of  consultation  and  conference,  com- 
bination and  conspiracy.  Let  each  man  go  quickly 
where  he  can  get  the  most  for  his  service.  The  fact 
that  this  is  not  done,  that  means  are  brought  to  bear 
upon  the  employer  which  are  not  ordinarily  used  in 
bargains, —  means  of  the  nature  of  a  threat  —  that 
the  justice  of  the  claim  is  not  relied  on  in  a  case 
where,  more  than  anywhere  else,  justice  can  enforce 
itself,  that  full  and  free  explanations  are  not  had, 
that  no  notice  is  given,  that  great  damage  is  ex- 
pected by  their  action  to  accrue  to  the  employer,  all 
this  seems  to  forget  that  the  transaction  between 
employers  and  employed  is  a  case  of  pure  exchange, 
a  simple  bargain  of  one  service  against  another  ser- 
vice. Therefore,  I  say,  that  strikes  are  false  in 
theory. 

But  this  is  not  the  worst  of  it.     Strikes  are  per-  /<»        ' 
nicious  in  practice.     And  the  reason  for  this  is  that  ^'^ 
they  tend  to  lessen  the  wages-fund.     The  produc-/^      ^ 
tion  of  all  material  commodities  is  a  joint  process.  '^^^' 
Capital  and  labor  both  conspire  in  it.     The  gross 

returns  belong  wholly  to  the  capitalists  and  the  labor- 

11 


162  ELEMENTS  OF  POLITICAL  ECONOMY. 

ers.  The  profits  of  capital  and  the  wages  of  labor 
are  paid  out  of  these  returns  and  from  no  othei 
source.  It  is  for  the  interest  of  both  capitalists  and 
laborers  that  these  returns  be  as  large  as  possible, 
because  they  are  wholly  divided  between  the  two, 
and  if  the  whole  be  large  the  parts  will  also  be  large. 
Profits  being  taken  out,  the  rest  is  wages-fund ;  or, 
more  strictly  speaking,  wages-fund  being  taken  out, 
the  rest  is  profits.  It  makes  no  difference  practically 
that  the  wages  have  been  advanced  to  the  laborers 
while  the  production  was  still  going  forward,  since 
the  wages  really  come  out  of  the  proceeds  of  the 
joint  process.  The  capitalist  never  means  to  pay 
ultimate  wages  out  of  his  accumulations,  and  ought 
not  to  be  expected  to  do  so,  and  were  he  obliged  to 
do  so,  it  would  soon  be  worse  for  the  laborers,  since 
these  accumulations  are  the  gross  capital  feeding  the 
wages-fund.  It  is  not  only  just  but  needful  for  the 
laborers,  that  wages  shall  be  paid  out  of  the  pro- 
ceeds of  that  on  which  labor  is  now  expended. 
Whatever,  then,  tends  to  lessen  these  proceeds, 
necessarily  lessens  the  wages-fund.  Any  interrup- 
tion of  the  process  of  production  by  strikes,  any 
want  of  full  and  hearty  cooperation  between  the  two 
parties  to  the  joint  process,  will,  if  continued,  infalli- 
bly make  the  wages-fund  smaller. 

Suppose  it  takes  three  months  to  realize  the  re- 
turns in  some  branch  of  mani|facture.  If,  when  the 
workmen  are  paid  off"  at  the  end  of  one  three  months, 
they  all  strike  at  the  beginning  of  the  next,  and  both 
parties  hold  out  for  three  months,  what  is  now  the 
chance  for  higher  wages?  It  shall  go  hard  even  if 
they  get  as  much  as  before.     And  why  ?     Because 


ON  LABOR.  163 


the  mill  has  stood  idle,  and  the  owner  has  lost  three  ^^t^i^^^^^^  ^^^ 
months'  profits  on  the  whole  investment  connected  ^Uuf**^UP'^ 


with   the   mill.      They  have   lost   wages   for   three   '^  ^J^'      i 
months,  and  now  when  they  come  to  begin  again,*l5^^ 
they  may  not  be  able  to  wait,  as  before,  till  the  end  ^~''''**^^^^ ' ^ 
of  the  cycle,  and  their  wages  must  be  advanced  out . 
of  a  fund  smaller  than  it  would  have   been  but  for^/^-**.*,*'**-/ 
the  strike.     The  employer  usually  advances  wages  jfcjtii^ 
out  of  his  own,  or  borrowed  capital,  expecting  to  be  ^^^^U-t^ , 
repaid  from  the  results  of  current  work.     Sometimes 
his  mere  expectation  of  large  returns  acts  favorably 
on   the  wages-fund.      But   this   employer   has   lost'^'^y^*'^*^  *^ 
profits  and  customers  by  the  strike,  and  his  business  is  »tt**^>***^  *« 
disarranged.     His  workmen  by  inflicting  a  loss  upon  fi*-**^-*--*^ 
themselves  have  found  an  opportunity  of  inflicting  'oJ>^^^^' 
a  loss   upon    him.     Their   loss  is  undoubtedly  the 
greater  of  the  two.     Therefore,    I  say,  strikes   are   *^j*'^^'*' 
commonly,  and  almost  necessarily,  a  disadvantage  «^*^***' ' 
to  the  workmen  themselves.     The  case  just  put  is  a 
strong  case  to  show  the  principle  involved,  but  all 
interruption  whatever  to  the  processes  of  production 
by  strikes,  all  consequent   embittered  relations  be- 
tween employers  and  employed,  all  want  of  hearty 
working  together  of  the  labor  with  the  capital,  tend 
to  diminish  the  gross  returns,  and  consequently,  both 
the  wages-fund  and  profits.     As  far  as  this  point  is^ 
concerned,  there  is  no  sense  or  reason  in  the  common'        ^^ 
jealousy  of  workmen  towards  employers.     There  \q/^ 'f-'f^^^^ 
no  real  antagonism  between  them.     Their  interestsy""^*^  ' 
lie  along  the  same  line.     They  are  partners  in  the^*^*^"""*^ 
same  concern.     Workmen  who  are  intelligent,  pru-^^J^^*" 
dent,  skilful,  will  infaUibly  get  their  due.     Employ-  ^"^^  ^'f>  ^ 
ers  who   are  humane,  urbane,  fair,  will  find  their 
account  in  it. 


1/1-^,4^  CK. 


I 


164  ELEMENTS  OF  POLITICAL  ECONOMY. 

In  this  whole  discussion  it  has  been   needful  to 
treat  of  laborers  as  if  they  formed  a  distinct  class 
./  ^4      of  themselves,  and  as  if  the  class  were  represented 
V>-v       by  a  certain  average  laborer  receiving  an  average 
^  /^      rate  of  wages.     As  a  matter  of  fact,  the  class  labor- 
V  V^r|^-^<-yers  shade  constantly  into  the  class  capitalists,  and 
^ ^^^  there  is  great  diversity  in  the  wages  of  individuals 

according  to  their  character  and  skill.  This,  how- 
ever, does  not  militate  against  the  principles  already 
laid  down. 

It  has  been  proven  many  times  by  experience  that 
the  let^alized  use  of  an  inferior  money  operates  de- 
"Y^'  cidedly  against  laborers  as  a  class,  as  well  as  against 

those  in  receipt  of  fixed   incomes.     Wages  experi- 
^^    ence  very  late  the  rise  of  prices  consequent  upon  a 
T  depreciated  currency ;   because  laborers  as   a  class 

are  slow  to  perceive  the  change  in  the  purchasing- 
power  of  the  medium,  and  are  consequently  slow  to 
insist  on  their  just  rights  in  the  now  altered  circum- 
,  7  stances ;  while  the  fall  of  wages,  late  to  rise  under 

*^  ^^f""        a  poor  money,  is  apt  to  be  prompt  enough  under  a 
...^.^v^^'',  return  to  better  money,  because  employers  see  the 

change  at  once,  and  act  quickly  in  accordance  with 
I  ^   tj      their  own  interests.     In  general,  it  may  be  said,  that 
'  ^  Av-wT^  ^^^  departures  from  sound  legislation,  particularly  in 
._^  /^^  regard   to   money  and  taxation,  are   sure   to   make 
..r^^J*^    against  the  laboring  classes,  and  the   only  certain 
Ae^erv^  ^^  remedy  for  such  legislation  is  in  their  own  intelli- 
t^jd^^  .^  '     §^"^^  ^"^  vigilance. 

ru>\  'V'jw  Wix,      -^^b^^^^ers  work  for  the  sake  of  wages,  but  it  is  an 

^'^r-  y^rju^      honor  to  human  nature  that  there  are  very  few  men 

^^^j^;-        who  would  be  willing  to  work  at  any  wages  in  doing 

.  •-  eoW^^X  ^''^^"^^  *^^*  *^^^^  know  to  be  useless.     For  example, 


ON  LABOR.  165 

to  carry  stones  from  one  heap  to  another,  and  then 
carry  them  back  again,  for  no  ulterior  purpose,  is  a 
task  that  few  would  be  content  to  perform  even  foi 
very  high  wages.  Man  is  not  a  machine.  His  mind 
must  be  somewhat  interested  in  the  work  of  his 
hands;  and  this  is  another  point  at  which  our  field 
of  Economics  touches  the  field  beyond  of  Aims  and 
Ends. 

In  discussing  labor  and  wages,  it  will  be  noticed 
that  I  have  made  no  reference  to  a  subject  a  good^  ^j^t^au 
deal  agitated  at  present  in  Europe  and  somewhat 
also  in  the  United  States,  namely,  to  cooperation. 
This  is  a  scheme  originating  with  laborers  them- 
selves, under  which  they  combine,  either  to  purchase 
their  necessaries  in  common  and  hence  at  cheaper 
rates  because  avoiding  all  profits  of  middle-men ;  or, 
more  especially,  to  engage  in  joint  production,  the 
workmen  furnishing  the  capital,  all  being  copartners, 
and  of  course  all  sharing  pro  rata  the  profits  of  the 
concern.  All  this  is  well;  and  in  countries  where  ^»-t<,.e^ 
laborers  are  under  traditional  disabilities,  it  may  be<"<'-<»^">-. 
very  promotive  of  their  welfare ;  but  any  one  can  see 
that  no  new  economic  principle  is  involved  in  it. 
The  workmen  unite  the  character  of  capitalist  and 
laborer  in  their  own  persons,  and  both  receive  wages 
and  share  profits ;  but  the  principles  which  determine 
the  amount  of  each  are  the  same  as  if  the  two  went 
in  opposite  directions.  The  practical  success  of  the 
scheme  will  depend  in  each  case  upon  the  question 
whether  there  be  any  of  the  workmen  of  sufficient 
organizing  and  executive  ability  to  carry  it  through. 
Workmen  should  have  a  chance  to  do  this  every- 
where :  it  is  done  essentially  whenever  two  or  more 


166  ELEMENTS  OF  POLITICAL  ECONOMY. 

workingmen  organize  a  firm  to  carry  on  any  busi- 
ness. In  the  United  States  the  greatest  freedom 
prevails  ;  there  is  nothing  to  hinder  any  laborer  from 
becoming  a  capitalist ;  nearly  all  our  capitalists  were 
formerly  laborers  ;  the  savings-banks  are  open  for  the 
smallest  gains ;  and  the  shares  of  most  joint-stock 
companies  are  open  to  everybody  who  has  means  to 
buy  them.  There  is  only  one  consideration  that 
seems  to  justify  in  this  country  any  special  jealousy 
of  laborers  as  such,  towards  capitalists  as  such  ;  and 
that  is  the  fact,  that  the  legislature  does  sometimes 
confer,  by  means  of  corporate  charters,  and  other- 
wise, certain  extraordinary  rights  upon  capital.  So 
long  as  capital  and  labor  rest  solely  upon  their  nat- 
ural rights,  neither  can  have  the  advantage  of  the 
other ;  but  so  far  forth  as  advantage  is  given  to  capi- 
tal by  law,  it  is  unjust  to  labor,  and  ought  to  be 
vigilantly  watched  and  counteracted  by  laborers. 
The  legislature,  whether  state  or  national,  cannot  be 
too  scrupulous  in  this  whole  matter.  The  proper 
limits  of  legislative  action  upon  economical  subjects 
are  pretty  narrow.  Capital  and  labor  should  both 
have  the  utmost  liberty  of  action  compatible  with 
social  security ;  and  the  equal  rights  of  each  will,  in 
general,  best  be  reached  by  leaving  both  to  take  care 
of  themselves,  subject  only  to  general  laws  relating 
to  person  and  property.  If  the  legislature  yields  to 
special  claims  of  capital,  it  must  expect  to  hear  labor 
also  knocking  at  its  doors.  If  capitalists  "strike" 
i|:j:«,U/vt^  for  artificial  profits  by  means  of  a  protective  tariff, 
why  may  not  laborers  "  strike"  for  artificial  wages  ? 
The  former  have  set  the  latter  a  bad  example.  Much 
of  the  recent  discontent  of  labor  has  come  from  this 


ON  LABOR.  167 

greed  of  capital  demanding  and  securing  for  itself 
special  privileges.  Let  alone.  Legislatures  are  not 
wise  enough  to  settle  the  great  questions  involved 
between  capitalists  and  laborers.  They  are  not  wise 
enough,  and  never  will  be,  to  say,  for  example,  how 
much  wages  capitalists  shall  pay,  or  how  many  hours 
per  day  adult  laborers  shall  work.  To  attempt  to 
regulate  any  such  things  as  these  by  legislation  is 
an  economic  abomination. 


168  ELEMENTS  OF  POLITICAL  ECONOMY. 


_A 


CHAPTER  VIL 

ON  CAPITAL. 

The  three  requisites,  of  production  are  labor, 
vvA^^vCtl^^?  power-agents,  and  capital.  Of  the  first  we  have 
now  learned  what  can  be  learned,  without  attending 
in  turn  to  its  counterpart  —  capital ;  of  the  second 
we  have  learned  already  that  all  the  powers  of  Nature 
work  gratuitously  in  the  service  of  man ;  and  of  the 
third,  we  are  now  to  learn  what  it  is,  how  it  arises, 
how  it  works,  and  what  its  influence  is  upon  the 
progress  and  amelioration  of  society.  Political  econ- 
omy is  able  to  show  that  there  is  no  natural  opposi- 
tion of  interest  between  capitalists  and  laborers ; 
that  capital  is  just  as  dependent  on  labor  as  labor  is 
dependent  on  capital ;  that  each  is  equally  interested 
in  the  prosperity  of  the  other,  and  that  thus  a  deep 
and  admirable  harmony  subsists  in  this  part,  as  in 
every  other  part,  of  the  social  organism. 

The  word  Capital  is  derived  from  the  Latin  caput, 
a  head,  a  source,  and  gives  intimation  in  its  etymol- 
ogy of  its  scientific  meaning.  The  word  caput  is 
often  used  in  classical  Latin  for  a  sum  of  money 
put  out  to  interest,  and  its  derivative  capitate  is  also 
used  in  the  same  sense,  at  least  in  medieval  Latin ; 
and  from  this  form  of  the  word  have  come  into 
English  not  only  Capital,  but  also,  by  corruption, 
Cattle  and  Chattels.     Flocks  and  herds  were  at  one 


ON  CAPITAL.  169 

time  the  principal  wealth  of  our  anceytors,  and  the 
same  word  came  to  be  spelled  differently  as  applied 
to  animals,  or  to  inanimate  things  of  value.  The 
notion  implied  in  our  word  source  came  along  in  all  v^, ^  ^<^,; 
thet^e  words,  and  hence  Capital  may  be  scientifically  '  J 
defined  as  any  valuable  things  outside  of  man  him- 
self ,  from  whose  use  springs  a  pecuniary  increase  or 
profit. 

The  definition  that  I  formerly  gave,  namely,  ^^  Cap'^&y^^r  ^ 
ital  is  any  product  reserved  to  be  employed  in  further 
productions^''  is  indeed  equivalent  to  the  one  now 
given,  but  it  does  not  so  distinctly  exclude  personal 
services  from  the  category  of  capital.  The  boun- 
dary line  between  labor  and  capital  cannot  be  clearly 
drawn,  unless  the  physical,  mental,  and  moral  pow- 
ers of  man  himself,  so  far  as  these  come  into  play 
in  personal  services,  are  discriminated  from  the  ex-  -^'^•f-  '^^ 
ternal  commodities  and  claims,  which  alone  can  be  , 
properly  capital.  Labor  is  the  exertion  of  physical 
and  mental  powers  for  the  sake  of  a  return.  Its 
remuneration  is  wages.  Its  principles  have  been  al- 
ready unfolded.  Capital,  on  the  other  hand,  is  some 
valuable  thing,  always  a  commodity  or  a  claim, 
rej*erved  from  immediate  use  in  enjoyment  for  the 
sake  of  an  increase  to  its  present  value  through  its 
employment  productively. 

It  is  fair  to  apprise  the  reader  that  this  definition 
is  somewhat  different  from  that  given  by  any  other 
wiiter.  Mr.  Carey  defines  capital  as  "the  instru- 
ment by  means  of  which  man  obtains  mastery  over 
Nature,"  including  in  it  the  physical  and  mental  i\. 
powers  of  man  himself,  and  thus  hopelessly  confuses 
the  boundaries  between  capital  and  labor.    Mr.  Mac- 


(Wv.»vV 


JJi'A 


170  ELEMENTS   OF  POLITICAL  ECONOMY.    > 

leod  dej&nes  capital  as  "  any  economic  quantity  used 
for  the  purpose  of  profit,"  making  it  expressly  inclu- 
sive of  professional  talents,  and  this  seems  to  open 
the  definition  to  the  previous  objection.  Most  writ- 
ers, I  think,  would  define  with  Mr.  Senior,  "an  arti- 
cle of  wealth,  the  result  of  human  exertion,  employed 
ijjA^^^-vs  l-i,.  in  the  production  or  distribution  of  wealth."  Be- 
sides the  inherent  ambiguities  in  the  word  "  wealth," 
this  definition  is  indistinct,  as  not  indicating  whether 
commodities  only,  or  commodities  and  claims  only, 
or  commodities  and  claims  and  personal  powers, 
may  be  capital. 

I  have  considerable  confidence  that  the  definition 
now  given  will  be  found  to  cover  all  the  cases,  to 
obviate  many  difficulties,  and  to  take  the  life  out  of 
many  disputes.  Personal  powers  are  used  for  the 
sake  of  a  return  ;  capital  is  used  for  the  sake  of  an 
increase.  Personal  powers  cannot  be  parted  with, 
although  their  exercise  gives  birth  to  value ;  capital 
V"^'-'  can  always  be  parted  with,  and  become  fruitful  in 
•  ^  the  hands  of  another.  When  it  is  said  that  a  young 
man's  integrity,  or  his  acquired  skill,  is  his  capital^ 
the  word  is  used  in  a  metaphorical,  not  in  a  scien- 
tific sense.  The  meaning  is,  that  these  qualities  are 
like  capital  in  some  respects.  Of  course  it  will  be 
understood  that  the  Class  Capital  is  a  smaller  class 
under  the  great  Class  Values;  and  that  the  same 
article  of  value  may  be  at  one  time  capital,  and  at 
another  time  not  capital,  according  to  its  destina- 
tion. Money  in  the  hands  of  individuals  is  some- 
times capital  and  sometimes  not,  although  the  whole 
money  of  the  nation,  considered  as  belonging  to  the 
nation,  is  wholly  capital.     Credits,  that  is  to  say, 


ON  CAPITAL.  171 

claims  for  the  payment  of  money  or  other  valuables, 
are  capital  or  not,  according  as  they  are  kept  for 
convenient  use,  or  for  accruing  profit.  Any  piece  of 
transferable  property  may  become  capital,  either  as 
retained  by  the  present  owner  for  the  sake  of  a 
greater  than  its  present  value  to  be  obtained  by 
means  of  it,  or  as  purchased  by  another  person  with 
the  same  intent. 

Tliere   are  many  products  devoted  to  immediate /ivU.^tU 
consumption  ;  that  is  to  say,  to  the  gratification  of    -^v^W^^ 
present  desires,  without  any  reference  to  the  render-    -^^^^^  r ' 
ing  of  future  services  by  means  of  their  help.     Such    *''     "     "^.^ 
products  are  not  capital.     They  are  a  portion  of  the  ^^ 

wealth   of  the   community,  they   are   valuable,  but 
capital  they  are  not.     All  capital  is  wealth,  but  all 
wealth  is  not  capital.     Only  that  portion  is  capital    ':  '  '•' 
which  employs,  assists,  and  pays  for  labor.     All  raw  V'-*^^*'  Y^^ 
materials  are  capital,   all  machinery  is   capital,   all   -^-^'^^  '^*^> 
funds  destined  to  purchase  these,  and  all  funds  des- 
tined for  wages,  are  capital.     As  all  values  reside  in  ,/  i^      ^^ 
services  exchanged,  so  all  capital  resides  in  services  .  ^^ 
accumulated  with  reference  to  an  ultimate  exchange. 
It  is  only  in  the  intention  of  the  owner  that  capital 
can  be  discriminated  from  other  products  destined   .^.^..^^^^ 
by  him  for  the  gratification  of  himself  and  his  family,  •^^-^-r'tw 
or  for  benevolent  purposes.     Take  a  hardware  manu- 
facturer, for  example,  and  he  has  a  stock  on  hand  of 
finished  hardware,  a  part  of  the  proceeds  of  which 
he  will  put  back  into  his  business  in  the  form  of 
materials,  tools,  and  wages,  and  another  part  will  go 
in  the  form  of  personal  and  family  expenditure,  and 
it  is  only  his  intention  that  discriminates  the  -first 
part,  which  is  purely  capital,  from  the  second  part, 


172  ELEMENTS  OF  POLITICAL  ECONOMY. 

which,  as  far  as  he  is  concerned,  is  not  capital  at  all. 
y^'  It  may  indeed  become  capital  in  the  hands  of  those 

to  whom  he  pays  it  out ;  and  will  become  so,  in  case 
they  destine  it  as  an  aid  to  further  production  in 
their  several  lines  of  business.  The  whole  mass 
of  capital,  then,  in  any  country,  is  the  whole  mass  of 
those  products,  of  whatever  kind,  which  are  destined 
in  the  mind  of  their  owners  to  be  retained  as  an  aid 
towards  rendering  future  services  to  society. 

How  does  capital  arise  ?  We  have  seen  that 
'-^>^''  CmV  there  are  obstacles  which  lie  in  the  way  of  the  grati- 
6cation  of  men's  desires  in  all  directions,  and  that 
these  obstacles  can  only  be  removed  by  human  effort. 
When  a  man  devotes  himself  to  one  set  of  these 
obstacles,  with  a  view  to  surmount  them,  he  is  not 
long  in  discovering,  that  if  he  had  certain  tools,  his 
work  would  be  greatly  facilitated ;  and  having  dis- 
covered that,  it  will  not  be  long  before  he  will  at- 
teinpt  himself,  or  induce  others  to  attempt,  to  invent 
such  tools.  The  beaver  gnaws  down  the  tree  with 
his  teeth,  from  generation  to  generation  ;  but  man  is 
a  being  more  nobly  endowed  than  the  beaver,  and 
no  sooner  had  he  occasion  to  fell  trees,  than  some- 
thing of  the  nature  of  an  axe  suggested  itself  to  his 
ingenuity.  It  is  true,  that  his  earliest  attempts  at 
axe-making  were  probably  of  the  rudest  sort,  but 
just  as  soon  as  anything  was  devised,  whether  of 
flint  or  shell  or  metal,  that  rendered  easier  the  labor 
of  felling  a  tree,  capital  made  a  beginning  along  that 
line  of  obstacles.  Among  the  more  gifted  races, 
progress  in  this  direction  was  perhaps  more  rapid 
than-  we  are  wont  to  think  it  was,  since  Tubal-cain, 
even  in  the  times  before  the  flood,  is  said  to  have 


ON  CAPITAL.  173 

"hammered  all  kinds  of  implements  out  of  copper 
ai)d  iron."    At  any  rate,  we  are  at  no  loss  to  explain  . 

the   origin  of  capital:  it  is  found  in  the  motive  that  ^^^1*7     s 
exists  everywhere,  and  that  always  existed,  to  lessen,'"^  P-*-**^*— 
if  possible,  a  given  irksome  effort  that  is  the  condi- 
tion  of  a    given   satisfaction.     And   this   origin  of 
capital  gives  the  key-note  to  its  universal  use  and 
indefinite  expansion.     Tools  are  invented  and  em- tlc-^»4^/' 
ployed  for  no  other  reason  than  this,  that,  by  means  Ux-j^yCj' 
of  their  help,  the  human  effort  is  lessened  relatively 
to    a  given    satisfaction.      The    powers   of   Nature, 
such  as  those  which  make  the  grain  grow,  bring  the  p^^^,,,^^,,,^. 
tree  down,  turn  the  water-wheel,  impel  the  locomo- a     ,-- 
tive,  and  send  the  message  round  the  world,  all  stand 
ready  to  slave  in  the  service  of  man ;  but  in  order  to  ^^*>^^^ 
make  their  aid  available  for  human  purposes,  there  ^^''*'^'*"''^ , 
must  be  a  plough,  an  axe,  a  wheel,  an  engine,  an  ^^''•'"*^*^'^ 
electric  machine.     These,  and  all  other  implements 
whatsoever,  from  the  tiniest  needle  to  the  most  pon- 
derous engine,  are  products  created  and  retained  for 
the  sake  of  further  production.     They  are   capital. 
They   are    not   capable   of    yielding   in   themselves 
an  ultimate  satisfaction  to  human  wants,  but  they 
mediate  between  the  powers  of  Nature,  which  they 
enable  us  to  make  available  for  our  purposes,  and 
those   ultimate   satisfactions.     Nature   furnishes   all 
the  powers,  and  all  the  natural  qualities  of  objects, 
but   labor   can  go   but   a  very  little   way   towards 
making  these  available  for  the  satisfaction  of  human 
wants,  without  the  aid  of  implements   and   contri- 
vances which    are   produced  by  labor;  and  which, 
being  retained  as  an  aid  to  future  labor,  are  capital, 
8ince  it  requires  tools  to  make  tools,  the  progress  of 


(Jb-W.ex.l74  ELEMENTS   OF  POLITICAL  ECONOMY. 

capital  at  first  was  very  slow;  but,  since  every  ad- 
^^^L^  vance  in  mechanical  contrivance  makes  still  further 
*  advances  easier,  there  is  a  natural  tendency,  which 
facts  abundantly  exemplify,  to   a   more   and  more 
rapid  progression  in  the  number  and  perfection  of 
all   implements   of  production.     The   same    motive 
that  impelled  to  the  first  invention,  has  impelled  to 
the  whole  series  of  inventions  since,  and  will  con- 
stantly impel  to  further  inventions  till  the  end  of 
time.     This   motive,  —  and  there  is  no  motive  that 
actuates   man   more   universal,  —  is,   to   lessen   the 
onerous  effort  of  human  muscle,  and  to  throw  upon  the 
ever-willing  shoulders  of  Nature  more  and  more  of  the 
•      i   '         burden  of  production.     Every  step  of  this  progress 
^j^^__   ot    gives  birth  to  a  larger  and  larger  proportion  of  satis- 
^'^  j^^j^^ factions  relatively   to   efforts;  marks  an  increasing 
G        (A.  C«^  control   on   the   part   of  man    over   the    powers   of 
li  cwmZ^'     Nature;  and  gives  promise  for  the  time  to  come  of 
^^  0.^^  ry^X^reater  advantages  still  in  both  these  two  directions. 
And  it  is  because  capital  brings  gratuitous  natural 
forces  into  service,  and  the  more  so  as  capital  pro- 
^uJxv^A-  «^*^  gresses,  that  the  value  of  those  things  created  by  the 
•JUct^iL^  ^aid  of  capital  tends  constantly  to  decline  as  com- 
,^xkl^  %t^     pared  with  the  value  of  those  things,  in  whose  pro- 
A  ,  v^  ^^f^f;^duction  capital   less  conspires;  and  in  the  chapter 
l|^^  following  the  next  will  be  developed  from  this  point 

'  e  ,^j.     one  or  two  important  laws  of  value. 

/\  tvv -  ft.      The  power  of  capital  in  reproduction  is  something 
\  marvelous.     Capital  breeds  capital.     Even  the  ordi- 
nary  annual  interest  of   money,  if  regularly  com- 
fi^j^<  pounded  with  the  principal,  will  double  that  princi- 

ukdt^  /« '/^  pal  in  a  very  few  years.     But  the  rate  of  interest, 
.X«-.*Nt^jr  t^^,^\j  which  is  usually  reckoned  by  the  year,  must  not  be 


Voy^r^ 


J^l 


ON  CAPITAL.  175 

confounded  with  the  rate  of  profit,  which  may  accrue 
by  the  day,  by  the  week,  by  the  month,  or  shorter 
irregular  periods.     Some  interesting  facts  are  men- 
tioned as  occurring  in  the  retail  provision  trade  of  - 
Paris.     Turgot  instances  that,  in  his  time,  the  money /itX<^  ^* ' 
lenders  charged  the  petty  dealers  two  sous  a  week^--^^^  «*^ 
for  the  loan  of  three  francs.     That  is  interest  at  the 
rate  of  173  per  cent,  per  annum.     But  if  the  dealer 
sold  his  three  francs'  worth  of  victuals  for  three  francs 
and  a  half  every  day,  as  is  likely,  his  profit,  omitting 
Sundays,  would   be   at   the  rate  of  5,216  per  cent. 
per  annum.     That  this  way  of  doing  business  is  still 
kept  up  in  Paris,  as  it  used  to  be  also  in  London, 
appears  from    a   speech   of   a   member   of  the  late 
Legislative  Assembly  of  France,  who  says,  that  a 
five-franc  piece  borrowed  in  the  morning  will   buy 
provisions  that  may  be  sold  for  eight  francs  in  the 
course  of  the  day  ;  twenty-five  centimes  are  paid  in 
the  evening  without  complaint  as  the  interest  on  the 
money ;  that  is  at  the  rate  of  1,800  per  cent,  per 
annum;  but  the  rate  of  profit  is   21,600   per  cent^ 
per  annum,  or   twelve   times  the   rate   of   interest.^ 
Even  at  a  very  small  ratio  of  profit  to  principal  on 
each   transaction,  a   money  capital    turned  quickly 
over  accumulates  with  a  startling,  almost  incredible-^     ^/   • 
rapidity.     Equally  wonderful  is  the  power  of  capi-^.  - 
tal  in  the  form  of  machinery  to  hasten,  facilitate,  and  ^_^^j^^^^^^^ 
accumulate  production.                                                     ^r^^^^^^^SU 
Now,  then,  having  seen  what  capital  is,  and  the^ehrA*.^ 
human  motive  that  brings  it  forward  in  production,f*^^.  ^^ 
we  next  inquire  after  its  remuneration.     The  remu-  ^ 
neration  of  capital  is  technically  called  profits :  just   q^^STZ 

1  See  Macleod's  Economical  Philosophy,  p.  219.  *^ 


►to^  iL*.P 


176  ELEMENTS  OF  POLITICAL  ECONOMY. 

as  wages  are  technically  the  remuneration  of  labor. 
The  present  proposition  is,  that  profits  are  the  legiti- 
mate reward  of  a  service,  just  as  much,  and  in  the 
"^^ri/^     same  sense,  as  wages  are  the  legitimate  reward  of  a 
]'  **r,     '^     service.     The  distinctive  service  of  the  capitalist  as 
''''^■"'J*^ '       such,  as  distinguished  from  the  service  of  the  laborer, 
»^HJ  rU<       consists  in  his  voluntary  abstinence  from  the  use  and 
i^*-^-)  r;;^'     enjoyment  of  that  which  he  contributes  in   aid  of 
u^*^v^r.f  ,*    further  production.     If  a  man  puts  a  thousand  dol- 
lars, which    he   might   spend   upon   his   immediate 
gratifications,  into  a  machine  to  be  used  in  his  busi- 
ness, the  money  immediately  becomes  capital;  the 
owner  practices  abstinence,  and  for  this  abstinence 
"  "^  N' •   justly  expects  a  reward.     This  reward  we  call  profit. 
Cw,/, .    The  expected  profit  is  the  only  motive  for  the  absti- 
V*^  nence.     He  will  not  be  content  simply  to  get  hia 

r^  ,     thousand  dollars  back,  for  that  he  has  now:  he  must 

'^^^^^  ^  'have  his  thousand  dollars  with  a  profit.  Suppose  A 
vAvvrt^  \  to  be  a  manufacturer  of  flax  fabrics,  B  to  be  a  farmer 
in  his  neighborhood,  and  C  an  expert  mechanic  ac- 
{k.-^J  'nt,  ,  quainted  with  the  current  modes  of  spinning  and 
weaving  flax.  A  has  a  capital  of  $10,000  invested 
in  his  business,  in  buildings,  machinery,  materials, 
**^^*°^  and  wages-fund,  which  nets  him  $1000  a-year  clear 
profit.  At  the  end  of  the  year,  the  question  with 
him  is,  whether  he  shall  spend  this  $1000  un produc- 
tively in  immediate  gratifications,  or,  adding  it  to 
his  capital  stock,  increase  his  business  with  it.  If 
he  concludes  to  do  the  latter,  he  must  forego  the  use 
and  enjoyment  of  his  $1000  for  the  present,  he  must 
practise  abstinence  ;  and  this  he  will  not  do,  and 
ought  not  to  do,  except  in  view  of  increased  profits 
to  accrue  from  his  business  at  the  end  of  the  nexi 


ON  CAPITAL.  177 

year.     If  more  flax  is  to  be  spun  and  woven  in  his 
factory,  more  money  must  be  invested  to  buy  more 
materials,  to  pay  more  laborers,  or  to  pay  for  more 
or  better  machinery.     His  contribution  to  the  pro- 
spectively increased  production  is  $1000,  transformed 
by  his  intention   from    simple    property  to  capital, 
devoted  to   production   by   a   voluntary  abstinence 
from  its   present  use  and  enjoyment,  in   view  of  a^^. 
future  reward  or  profit.     It  is  a  service  rendered  by  J!*'/^^*"^ 
one  man  to  a  joint  process  to  be  performed  by  many,'     /'**^ 
and  gives  him  a  just  claim  to  a  portion  of  the  prod-"        ^"^^    i 
uct.     Is  exertion  irksome  ?     So  is  abstinence.     Are 
wages  legitimate?     So  are  profits.     B  as  a  farmer'/*^   fCr. 
might  devote  all  his  fields  to  growing  food  and  fruits  4,,..,^,^,^  , 
for  the  gratification  of  himself  and  family,  but  since 
A  now  wants  more  flax  fibre  for  his  factory,  he  gives 
up  a  part  of  his  acres  to  growing  flax,  and  this  be- 
comes a  part  of  A's  capital  in  the  form  of  raw  ma- 
terial ;  and  the  money  received  for  it  may  become 
capital  in  B's  hands  by  being  spent  either  in  agricul- 
tural  improvements,  or   in  buying  additional  land.p/  ^uti: 
The   mechanic    C,    by   giving    time,   exertion,    and 
money  to  the  work,  may  invent  an  improved  ma- 
chine  for   spinning  flax,  to  be  introduced  into  A's 
factory.     The  machine  becomes  a  part  of  A's  capital, 
and  the  money  paid  to  C  for  his  machine  is  partly 
wages,  a  reward  for  the  labor  bestowed  on  its  con- 
struction,  and   partly   profits,  to   replace   to    C   the 
money  used  in  making  the  machine,  together  with  a 
reward  for  his  abstinence  from  the  use  of  this  money  Q    /   . , 
until  the  machine  was  sold.     Thus  we  see  that  capi-       p^^ 
tal,  whether  in  the  form  of  wages-fund,  materials,  or^'^^^^^  U^^ 
implements,  is  always  the  result  of  abstinence;  and-^-*-^^-^^ 
£^4,^,,*--^  JUt^^-^a^;^—  ^  f^^,^/..'-^  •  du  o^-^^  'i-^<-t    t^x^4^ 


If< 


178  ELEMENTS  OF  POLfTlCAL  ECONOMY. 

that  whoever  abstains  from  the  present  enjoyment  of 
,  .  p  K  anything,  in  order  that  that  something  may  contribute 
^*^  ^  to  a  future  production,  renders  an  essential  service  ; 
^**^'  and,  consequently,  that  the  reward  of  such   absti- 

nence, or  profit,  is  just  as  legitimate  as  are  wages. 
This  is  very  clearly  seen  in  the  common  case  in 
UL*>4Xv-i3uS»  which  one  man  loans  capital  to  a  second,  to  be  used 
by  that  second  in  his  own  business.  Brooks  has  a 
thousand  dollars  in  hand  which  he  is  at  liberty 
-7^  ^.  I  either  to  enjoy  un productively,  or  to  employ  himself 
productively,  with  the  assurance  of  a  profit ;  but  is 
willing  to  forego  the  use  of  it  for  a  year  in  favor 
of  Smith,  w^ho  is  anxious  to  enlarge  his  business. 
Brooks'  abstinence  is  a  clear  service  to  Smith ;  and 
-- vvv.  at  the  end  of  the  year,  therefore.  Smith  not  only 
^-•^  cvw-  refunds  the  thousand  dollars  borro\ved,  but  also  sun- 
dry other  dollars  besides  as  a  specific  reward  for  this 
specific  service.  If  Smith  keeps  the  money  ten  years 
or  twenty,  it  is  no  more  than  just  that  he  should  pay 
this  sum  every  year  till  the  principal  is  refunded, 
because  the  service  is  every  year  repeated,  the  ab- 
stinence is  still  practised  in  his  favor.  Therefore, 
capital  once  acquired  by  abstinence,  becomes,  if  the 
abstinence  be  continued,  a  legitimate  source  of  per- 
petual revenue  to  the  owner,  as  well  as  a  perpetual 
source  for  the  maintenance  of  laborers.  Whoever 
transforms  his  property  into  capital,  establishes  there- 
by a  permanent  fund  whence  he  may  draw  an  in- 
come, and  laborers  support,  in  perpetuity;  because 
the  capital,  though  constantly  disappearing  in  pro- 
duction, as  constantly  reappears  in  products,  with 
profits  added  :  a  fact  which  shows  the  folly  of  the 
popular  opinion   which  regards  more  favorably  the 


'Vvx\m^" 


ON   CAPITAL.  179 

man  who  spends  his  money  freely  and  unproduc- 
tively,  than  the  man  who,  turning  his  money  into 
capital,  building  a  mill,  or  making  other  permanent 
investments,  creates  by  that  means  a  fund  in  the 
community,   out   of  which   permanent  wages    and 
permanent  profits  can  be  paid.     The  strength  of  the  \J^\^Jr■  ^ 
motives  to  abstinence  in  any  country  will  depend''^^^^*-^*-^ 
largely  upon  the  character  of  the  government,  and  f*-**-*"***"^*^ 
the   organization    of  society   there ;    these    motives^  a  •t^ 
being  generally  strongest  where   liberty   of  action, ^^^'^^^  •^(J 
equality  of  privileges,  and  security  of  property  are 
the  greatest. 

We  turn  now  to  the  relations  of  capital  to  labor,  fc^-*-*^^^^^ 
and  to  that  law  of  the  distribution  of  the  products  trV^'*^' 
between  capitalists  and  laborers,  which  was  promul-y        .. 
gated  by  Mr.  Carey,  and  which  justifies  his  claim  td^^*^1i 
be   regarded    as    an    important    contributor   to   the 
science  of  Political  Economy.     As  I  regard  some  of 
the  positions  of  Mr.  Carey  as  erroneous,  and  shall 
animadvert  on  them  in  that  view,   I  wish   at  this 
point   to  bear  testimony   to  his   merit  as  the  dis- 
coverer of  the  beautiful  law  of  distribution,  in  the 
light  of  which  the  future  condition  of  the  laboring 
classes  in    all   countries,  if   they   are   only  true   to 
themselves,  seems  hopeful  and   bright.     Capitalists 
are  interested  in  profits,  and  laborers  are  interested  ^..^i^^ 
in  wages ;  is  there,  then,  as  is  commonly  supposed,       •         , 
a  deep-seated  antagonism   between    them?      Nonejr^ t,^._ ^, 
whatever.     No  profits  can  be  realized  unless  labor  (O^iJ;^^ 
be  united  with  the  capital,  because  it  is  labor  alone  i«X-.  ,^y 
that  works    up   the   raw  materials,   tends   the   ma-    ^ 
chinery,  and  disposes  of  the  products.     Capital  not 
united  to  labor  remains  barren,  giving  birth  to  no 


A^ 


180  ELEMENTS  OF  POLITICAL  ECONOMY. 

profit,  nay,  itself  commonly  becoming  less.     At  an\ 
rate,  the  idle  mill  and  hoarded  gold  yield  no  profit. 
Without  the  profit  there  will  be  no  capital ;  since 
no  man   will  practise  abstinence  without   the  hope 
uJoK- ^vvce*^.  ^^  ^  reward :  but  without  the  labor  there  will  be  no 
j-y^v  Tt^-v-     profit ;  and  therefore  the  very  presence  of  capital  in 
teH.<^^v^.^UA."t,,.  any  community,  constitutes  of  itself  a  demand  for 
ts^Y^^  labor.     The  more  of  capital  in  any  community,  the 

\  Cuh  vw-'.  greater  the  demand   for  laborers,  since  it  is  through 
^My«-»-u^   laborers  alone  that  the  profits  are  realized.     But  the^ 
Ia^4.i:  greater  the  demand  for  laborers,  the  greater  the  re- 
ward of  labor ;  and,  therefore,  laborers  as  such,  are 
interested  in  nothins;  so  much  as  in  the  increase  of 
I*-  "i^     capital,  and  in  the  strength  of  those  motives  to  ab- 
**»v-<.*4<£^  U    stinence,  out  of  which  capital  springs, 
y^^  f,  Capital  must  have  laborers.     Laborers  desire  re- 

7^  munerative  employment.    It  is  the  old  case  of  values 

iXtcxi^^  /^^f;-  over  again.     Labor  offers  a  service  to  capital,  and 
*?>.ivV..,  ttw  capital  offers  a  service  to  labor.     They  exchange  to 
the  mutual  advantage  of  both,  and  one  is  as  inde- 
•»-^   cu    pendent  as  the  other.     The  workmen  may  hold  up 
.     v  hri^  their  heads.      They  offer   an    honorable   service   on 
l>«r»~t^-»  ~  TXa  which  capital  is  absolutely  dependent  for  its  exist- 
•«v^^T>  \a*^-aI  ence.      They   offer  a  service   as  legitimate   and   as 
r'*^*  v^vi..  H , .  respectable,  as  that  of  the  clergyman  who  preaches 
XH^  their  sermons  and  baptizes  their  children,  and   are 

paid  on  precisely  the  same  principles.  Let  no  em- 
ployer feel  too  much  exalted  towards  his  workmen. 
The  money  he  renders  them  is  no  whit  better  than 
the  work  they  render  him.  The  exchange  is  honor- 
able, and  the  parties  to  it  on  the  same  level  of  ad- 
vantage. They  are  as  necessary  to  him  as  he  is 
necessary  to  them.     As  a  capitalist  he  cannot  exist 


^  L>-i^'ljv^  (v*^.j-««,4-*^u^  ««^^  Tfev  ^HUt^  o±  f<xJLZtyL* 


ON  CAPITAL.  181 

without  them  ;  as  laborers  they  cannot  exist  without 
him.  He  is  one  blade  of  the  shears,  they  are  the 
other  blade,  and  it  takes  both  blades  to  cut.  It  is 
absurd  to  ask  which  blade  cuts  most,  because  there 
is  no  cutting  at  all,  unless  both  blades  work  together. 

More  than  this.  Capital  and  labor  are  not  only  -^  -toQ 
essential  to  each  other,  but  also  each  is  bettered  by.,  ^^^ 
the  prosperity  of  the  other.  If  capital  realizes  a  ~j  ^ 
good  round  rate  per  cent.,  every  capitalist  is  anxious 
to  enlarge  his  business,  whether  as  lender  or  active 
operator,  and  employ  as  much  of  his  wealth  as  pos- 
sible, as  capital.  This  process  increases  capital.  If 
men  constantly  put  their  profits  only  back  into  their 
business,  which,  under  a  high  rate  per  cent.,  they 
will  be  pretty  sure  to  do,  capital  rapidly  increases. 
But  increase  of  capital  is,  in  its  very  nature,  an 
increased  demand  for  laborers.  An  increased  de- 
mand for  laborers,  other  things  being  equal,  infal- 
libly raises  wages ;  just  as  an  increased  demand  for 
anything  else  raises  its  value.  Therefore,  laborers 
are  directly  interested  in  the  prosperity  of  capital, 
because  the  prosperity  of  capital  leads  to  its  in- 
crease, and  its  increase  leads  to  higher  wages.  As 
a  matter  of  fact,  high  profits  and  high  wages,  so  far 
from  being  incompatible,  usually  accompany  each 
other. 

But  is  the  capitalist  equally  interested  in  the  pros-   %^-p^uj 
perjty  of  laborers  ?     I  think  so.     That  he  has  to  pay 
high  wages  is  not  necessarily  a  dead  loss  to  him.  ^^^Vj 
This  is  no  game  of  grab,  in  which  what  one  gains^^'Tj^j^ 
another  loses;  it  is  a  case  of  joint  production,  iniK-  C«^ 
which  two  parties  conspire,  and  in  which  whatever 
helps  to  enlarge  the  gross  amount  produced,  helps  to 


182  ELEMENTS  OF  POLITICAL  ECONOMY. 


increase  the  share  falling  to  each  party.     If  then,  as 


'       they  undoubtedly  do,  high  wages  tend  to  make  the 


workmen   more  intelligent,  industrious,  frugal,  and 

V  '^^Jt^^^i^^^  inventive,  they  are  not  a  loss  to  the  capitalist,  but  a 

»^^    /v^  gain.      Larger  gross    returns   are   thereby    secured. 

1,^  3,      Tt^  Improved  intelligence  and  skill  of  workmen  affect 

X^yxyr^  V^>4pro^"^^i<^")  just  as  improvcd  machinery,  secured  by 

MW  T^A^^*      ^^^  ^^^  ^^  capital,  affects  it.     Both  alike  enlarge  the 

^  TU-v-r^u^aggregate  of  products  to  be  divided  between  capi- 

"^v  ftvwktalist  and  laborer.     Now,  in  the  division  of  products 

wV  Mh  thus  rendered  larger  in  amount,  what  hinders  capital 

^^ai^l'rom  getting  a  fair  share?     When  a  firm  is  prosper- 

'  tiuA-4    ous,  are  not  all  the  partners  benefited  ?     All  that  is 


ty^.._cl   «*vy 


K^i- 


S    h 


produced  is  to  be  divided ;  if  more  is  produced, 
more  is  to  be  divided.  Intelligent,  industrious,  skil- 
ful workmen,  are  best  for  production,  are  best  for 
the  capitalist,  and  therefore,  high  wages,  which  tend 
to  make  them  so,  and  which  are  a  consequence  of 
their  being  so,  are  to  be  paid  without  grudging. 
When  the  matter  is  sifted  to  the  bottom,  it  is  seen 
that  capital  is  as  much  interested  in  the  prosperity 
of  labor,  as  labor  is  interested  in  the  prosperity  of 
capital.     All  legitimate  interests  are  in  harmony. 

I  am  now  prepared  to  prove  that  all  increase  of 
capital,  while  it  redounds  to  the  benefit  of  capital- 
ists, redounds  in  a  still  higher  degree  to  the  benefit 
^f  laborers.  The  demonstration  is  Mr.  Carey's,  and 
"is  the  law  of  distribution  above  referred  to.  The 
proof  is  this.  The  rate  per  cent,  of  profits  invaria-  >$ 
bly  goes  down  as  a  country  grows  older  and  richer.  ^ 
This  is  a  simple  fact  of  history,  which  no  one  will 
dispute.  It  has  been  exemplified  alike  in  ancient 
and  in  modern  times,  so  that  one  is  at  a  loss  whence 


ON    CAPITAL. 


183 


to  take  the  best  examples,  when  all'the  examples  are 
so  good.  In  England,  three  centuries  ago,  the  legal 
rate  of  interest  was  ten  per  cent.,  while  now  the 
average  rate  is  barely  four  in  that  country,  and 
lower  still  in  Holland.  During  the  first  years  of 
mining  operations  in  California,  from  eight  to  fif- 
teen per  cent,  a  month,  with  security  of  real  estate, 
was  paid  for  the  use  of  money,  which  enormous 
rates  have  now  declined  to  rates  not  much  higher 
than  those  paid  in  the  States  along  the  Mississippi 
River,  and  in  these  also  the  rates  are  constantly 
approximating  those  current  in  the  older  Eastern 
States.  It  may  be  assumed,  therefore,  as  an  indis- 
putable fact,  that,  as  capital  increases,  the  rate  per 
cent,  for  its  use  tends  steadily  to  decline ;  but,  while 
less  profit  is  received  on  every  hundred,  there  are  also 
more  hundreds,  and  consequently,  there  is  an  abso- 
lute gain  to  capitalists  as  a  class,  and  both  an  abso- 
lute and  relative  gain  to  the  laborers.  Let  us  take  to 
figures.  Let  $100,000,000,  while  the  rate  of  profit 
is  six,  and  $500,000,000,  when  it  has  fallen  to  four, 
be  expended  in  payment  of  simple  wages.  So  far 
forth,  the  value  of  the  products  to  be  divided  yearly, 
will  be  represented  respectively  by  $106,000,000  and 
$520,000,000.  In  the  first  case,  $6,000,000  is  profits, 
and  $100,000,000  is  wages.  In  the  second  case, 
$20,000,000  is  profits,  and  $500,000,000  is  wages. 
Here  is  an  absolute  gain  to  capitalists.  Profits  have 
gone  up  from  six  to  twenty  millions,  are  more  than 
three  times  as  great  as  before.  But  wages  have  gone 
up  both  absolutely  and  relatively.  They  have  risen 
fiiora  one  hundred  to  five  hundred  millions,  and  are 
five  times  as  great  as  before.     Profits  have  risen  ii! 


184  ELEMENTS   OF  POLITICAL  ECONOMY. 

the  ratio  of  one  to  three,  but  wages  in  the  ratio  of 
one  to  five.  This  arithmetical  example  is  put  for 
the  sake  of  illustration,  but  the  principle  holds  good 
in  every  case  where  the  rate  per  cent,  goes  down 
in  consequence  of  the  increase  of  capital,  and  there- 
fore the  advantages  of  ever  enlarging  capital  are 
even  greater  to  the  laborers  as  a  class  than  to  the 
capitalists  themselves.  Most  assuredly,  if  capital 
now  takes  less  out  of  every  hundred,  more  is  left  to 
labor.  Profits  and  wages  are  reciprocally  the  leav- 
ings of  each  other,  since  the  aggregate  products 
created  by  the  joint  agency  of  capital  and  labor  are 
wholly  to  be  divided  between  them.  This  demon- 
!w>  ^v-^^vv  -  stration  is  extremely  important;  for  it  proves  beyond 
)^j^.^f)^^i9^  ^  cavil,  that  the  value  of  labor  tends  constantly  to 
>-^'9-\fju>  v^vvV^pse,  not  only  as  compared  with  the  value  of  the 
material  commodities  which,  by  the  aid  of  capital, 
it  helps  to  create,  a  truth  we  have  seen  before,  but 
also  as  compared  with  the  value  of  the  use  of  its 
co-partner  capital  itself;  and  therefore,  that  there  is 
inwrought  in  the  very  nature  of  things  a  tendency 
towards  equality  of  condition  among  men.  God 
has  ordered  it  so.  Self-interest  is  indeed  the  main- 
spring of  movement  in  the  economic  world ;  but  no 
man  can  labor  intelligently  and  productively  under 
its  influence,  without  at  the  same  time  benefitting 
the  masses  of  men.  His  very  savings,  productively 
employed,  are  the  poor  man's  wealth. 
'  '^  It  only  remains  to  speak  of  the  forms  which  capi- 
'  .  tal  assumes,  and  to  divide  these,  in  general,  into 
circulating  and  fixed  capital.  Circulating  capital 
comprises  all  those  products,  the  returns  for  the  sale 
X^L^   or   consumption  of  which  are  derived  at  once  and 


ON  CAPITAL.  185 

once  for  all.  Such  are  generally  (1)  all  raw  materials ; 
(2)  funds  destined  for  wages;  (3)  completed  products 
on  hand  for  sale ;  and  (4)  all  commodities  bought  and 
held  for  the  sake  of  resale.  Fixed  capital  comprisesj^Vyj^^  t* 
all  those  forms  of  capital  which  are  purchased  or  held 
with  a  view  of  deriving  an  income  from  their  use. 
Such  are  generally  (1)  all  tools  and  machinery  ;  (2)  all 
buildings  used  for  productive  purposes;  (3)  perma- 
nent improvements  in  land ;  (4)  all  investments  in 
aid  of  locomotion,  such  as  railroads,  canals,  ships, 
and  everything  subsidiary  to  these ;  (5)  all  products 
loaned  or  rented,  or  retained  for  that  purpose;  and 
(6)  the  national  money.  "  The  test  of  fixed  and  cir-  %^  'i 
culating  capital  is  the  inquiry,  Are  returns  secured 
by  the  retention,  or  by  the  transfer,  of  the  particular 
product  ?  Tools  in  the  hands  of  him  who  uses 
them  are  fixed,  in  the  hands  of  him  who  manufac- 
tures them,  circulating  capital."  ^ 

As  civilization  advances,  and  the  aggregate  of  all  ^[tjAz^  r^ 
forms  of  capital  enlarges,  there  is  a  tendency  towards^        r  ^ 
a  relative  increase  of  fixed  capital,  as  compared  with'y^  /  i^  ^ 
circulating.    This  disproportion  wouid  become  greater  ^X^ 
than  it  actually  does  become,  were  it  not  for  the  fact  ^*c,  ^ 
that  almost  all  forms  of'^fixed  capital  are  subject  to  a^V^EL^  - 
rapid  deterioration  of  value,  due  partly  to  usual  wear  •!/_  Jl 
and  tear,  and  partly  to  the  progress  of  improvements,-;--^       i  , 
in  consequence  of  which,  what  is  old  soon  becomes 
antiquated.     In  nothing,  perhaps,  is  actual  cost  of 
production  so  useless  a  guide  to  present  value,  as  in ,, 
machinery,  and  other  forms  of  fixed  capital.     New  ^'^^^  •  '    (^^ 
and  easier  methods  are  being   constantly  invented, 
and  the  result  of  their  introduction  is  to  lessen  the 

I  Bascom's  Political  Economy,  p.  71. 


186  ELEMENTS  OF  POLITICAL  ECONOMY. 

value   of  the   old   apparatus,  and   consequently  to 
lessen  the  value  of  the  aggregate  accumulations  of 
fixed,  as  compared  with  the  current  value  of  circu- 
r^"^"*^"^^^'  lating,    capital.      Production    looks    perpetually    to 
jLfVi^  -UX^-  ends;    and  estimates   means   just  in   proportion  to 
„^XcS  U^  I^Wtheir  present  efficiency  to  reach   the   end   proposed. 
i,x^x*<^  ,^^  If  the  end  can  be  reached  by  a  cheaper  process,  in 
,^  ^^any  department,  the  value  of  the  former  means  will 
'        fall ;  and  the  value  of  the  former  results  secured  by 
these  means,  other  things  being  equal,  will  fall  also. 
It  has  been  estimated,  that  at  the  present  time,  the 
lX*»f^*^^.^  proportion  of  circulating  capital  to  fixed  in   France, 
^^tr^cAjX^^^    is  one  to  eight;   in  England,  one  to  three;   in  the 
c v^v^4< .jjj^ -^g J  States,  three  to  five;  proportions  which  are 
..  .vwc^  .  'v.  believed  to  be  much  higher  in  favor  of  fixed  capital 
**  jf«MA* '  than  formerly  obtained  in  those  countries.^      It  isi 

w  *>i,5.'*.  also  worthy  of  notice  that  a  too  rapid  and  general  1 

[j^^^^,j;^;^;j[J^K   conversion    of   circulating   into    fixed    capital    mayj 
•■   .^^^-/      '  prove  temporarily  injurious  to  large  classes  of  per^^ 
^  .*-."»  sons.     If  all  carriage-makers,   for  example,  instead 
^C    of  selling  their  carriages  outright,  and  making  new 
/ilA^ifA.^;  carriages  with  the  proceeds,  should  let  them  out  on 
4  CaJuvc- hire,  receiving  their  value  only  in  instalments,  it  is 
*^      evident  that  they  could  not  make  so  many  carriages 
^ ' :  as  before,  and  that  their  workmen  would  suffer  by 
f.tAjL(^i.the  change  of  method.     So  too,  if,  while  a  national 
'  debt  is  being  contracted  for  war  expenditure,  general 

business  become  dull,  and  capitalists,  preferring  the 
steady  income  from  the  national  bonds  to  the  uncer- 
tain gains  of  business,  largely  invest  their  circulating 
capital  in  bonds,  it  is  very  clear  that  many  laborers 
would  suffer  a  disadvantage.     In  the  same  view,  a 

1  Carey's  Social  Science,  iii.  56. 


ON   CAPITAL.  187 

mania  for  building  railroads,  or  any  other  impulse,  ^       . 
by  which  large  masses  of  floating  capital  are  sud-  ^       jy^' 
denly  transformed  into  fixed  capital,  will  surely  be*'^''^ 
followed  by  some  temporary  distress. 

It  follows  from  all  that  has  preceded,  that  a  value 
must  first  come  into  being,  and  be  contemplated  as 
existing,  before  it  can  possibly  become  capital,  be- 
cause it  is  a  distinct  purpose  of  the  owner  to  use  it 
for  a  profit  that  capitalizes  it,  that  is,  transforms  it 
from  a  mere  value  into  the  special  form   of   value  — 
Capital.     It  also  follows  from  what   has   preceded, 
that  the  vast  destructions  of  war  are  mainly  a  de- 
struction of  capital.     War  cannot  be  carried  on  ex- 
cept by  means  of  property  actually  existing,  nor  for 
any  length  of  time  or  to  any  great  extent  except  by 
means  of  property  existing  in  the  form  of  capital. 
These  savings  previously  employed  productively  are 
the  source  whence  war-supplies  are  drawn  ;  the  cap-  o,  /    JLt 
ital  is  absolutely  destroyed;  the  war-debt  remaining ^^'^  ^ 
is  only  a  memorial  of  this  destruction,  and  an  obli-^lc«  «.  -^ 
gation  resting  upon  somebody  to  create  new  capital ofcv^p 
with  which  to  replace   the   old ;  the  debt  does  not 
carry  on  the  war,  but  transfers  the  capital  from  \ndi- ZAL^eJ^  ^ 
viduals  to  the  government ;  and  war,  accordingly,  is^i^,  X^JU: 
the  greates^t  enemy  to  exchanges,  because  it  annihi- 
lates a  portion  of  the  central  agencies  w^hich  carry 
them  forward. 


188  ELEMENTS  OF  POLITICAL  ECONOMY. 


CHAPTER    VIII. 

ON  LAND. 

The  test  of  a  definition,  a  generalization,  a  the- 
ory, is  found  in   those  seemingly  anomalous  cases 
with  which  all  science  has  to  do,  and  which  come 
M^  Hi-    with    such    apparent  reluctance    under    her   pains- 
taking  classifications.     If  a  definition   given,  or  a 
generalization  propounded,  reduce   into  order  these 
outlying  cases  without  violence,  as   well  as  cover 
easily  the  more  central  phenomena,  there  is  at  once 
created  a  strong  presumption  of  their  truth.     Does 
it  cover  all  the  cases  ?     Does  it  account  for  all  the 
observed  facts  ?     These  are  tests  of  definitions  and 
of  principles.    The  questions  relating  to  the  value  of 
land  and  of  its  products  have  been  among  the  most 
vexed  questions  of  Political  Economy,  have  exer- 
cised a  vast  amount  of  ingenuity,  have  led  to  careful 
and  commendable  observations  and   investigations 
in  the  whole  field  of  agriculture,  while  the  diverging 
views  that  have  been  taken,  the  arguments  adduced, 
the  conclusions  drawn,  and    the  spirit   manifested, 
in   these   discussions,   form    the   most   unrefreshing 
portion  of  the  history  of  the  science.     These  ques- 
lU^  0]  i*^^  tions,    however    bitterly   debated   in   the    past,   are 
hA  /V  &vrW>l«  approaching,  even  if  they  have  not  already  reached, 
9f*«i.i  iv*-x4r     *  satisfactory  solution.     The  value  of  land  and  of 
iL^-^^^A**.      *^®  products  of  land  have  been   almost  uniformly 


ON  LAND.  189 

regarded  in   the   theories   of  wealth  as  anomalous 
matters,  to  which  peculiar  principles  are  applicable, 
and  from  which  certain  conclusions  are  deducible, 
which  color  and  modify  results  and  prospects  in  the 
whole  field  of  value.     Adam  Smith,  Ricardo,  Me- y* '^"'"'^ 
Culloch,  Senior,  and  Mill  hold  substantially  one  set^^i*^^**^ '* 
of  views  on  land  and  its  rent.     Carey  and  Bastiat 
hold  views  on  that  subject  almost  totally  at  variance 
with   the  English  writers;  it  seems  to  me   that  the^;^/^ 
means  are  at  hand  for  combining  what  is  true  in^^  (vZ*/^ 
these  opposing  views  in  a  clear  and  consistent  man- 
ner, and  for  settling  the  dispute.      I  feel  sure  that 
both   parties   are   right  in    many  respects,  and   are 
wrong  in  some  respects,  and  am  not  without  some 
hopes  of  being  able  in  this  chapter  to  reconcile  the  /  ,.^^».t^' 
difference,  and  to  show  that  the  value  of  land  and^j^^^^j^^;- 
the  rent  of  land  are  not  anomalous  cases  of  value, 
but  arise   from    human   services   rendered    and   ex- 
changed, just   as  all   other    value  arises,  and  vary 
under  the  same  laws  as  vary  all  other  values. 

Desires  first,  and  then  efforts  —  the  utility  to  each  Vo 
party  of  the  respective  services,  and  then  the  equiv- </•*«  rfu 
alents  rendered  by  each  —  these  are  the  elements  out      '^  ^ 
of  which  the  value  of  land  and  of  its  products,  as  of 
everything  else,  must  spring;  otherwise,  our  science 
lacks  the  generality  which  alone  can  constitute  it  a 
science.      Whatever  makes  land  more  an  object  of?, 
desire  than  it  was  before,  whether  increased  fertility 
or  a  location  now  become  more  advantageous,  will, 
so  far  forth,  increase  its  value  ;  and  whatever  makes 
the  equivalent  offered  for  it  more  an  object  of  desire 
to  the  holder  of  the  land,  will,  so  far  forth,  dimin- 
ish its  value;  while  the  reversed  conditions  in  each 


//>>Mrx*-^  t«-' 


190  ELEMENTS   OF  POLITICAL  ECONOMY. 

case  will  give  of  course  reversed  results.  Let  us  see 
whether  the  definitions  and  principles  already  famil- 
iar to  us  will  not  apply  perfectly  to  the  value  and 
rent  of  land. 

A  series  of  propositions,  and  discussions  under 
them,  will  bring  out  what  seems  to  be  the  truth  in 
this  whole  matter. 

>  <^       pi  i-st.   The  whole  earth  with  all  its  productive  powers 

'  was  given  to  men  gratuitously  of  God  under  the  sim- 
ple direction  that  they  replenish  and  subdue  it. 

No  provision  was  made  for  particular  ownership. 
The  whole  earth,  thus  bestowed  without  partiality 
upon  a  whole  race,  had  in  all  its  spontaneous  prod- 

J^  ^Ijc^J^  V  ucts  a  great  utility,  but,  for  a  time,  no  value  what- 
V ,  ^  (cJij  ^^^'^'  ^^^  spontaneous  fruits,  when  gathered  by 
any  person,  might  become  thereby  possessed  of  value 
Vv.^M  ^^"^  ^^^  effort  expended,  but  to  the  land  itself,  on 
which  no  human  efforts  had  been  expended,  the 
idea  of  value  could  not  have  attached.  No  man 
would  have  thought  to  say  to  another  under  such 
circumstances.  This  field  is  mine :  give  me  some- 
thing for  it,  and  you  shall  have  it ;  and  if  he  had, 
that  other  would  not  give  it,  because  such  fields 
were  open  on  every  hand  to  his  occupation  gratis. 
It  is  not  in  human  nature  to  render  anything  for 
something  which  may  be  gratuitously  obtained ; 
value  has  no  place  in  a  sphere  where  everything  is 
free.  But  it  is  well  worth  while  to  notice,  that  under 
God's  command,  the  earth  was  not  only  to  be  re- 
plenished but  subdued.  Under  this  word  subdue, 
and  under  the  work  implied  in  that,  came  in  the  first 
idea  of  ownership  in  land.  Wh^n  a  family  com- 
menced this  work  of  subjugation  upon  a  piece  of 


ON  LAND.  191 

land,  when  they  enclosed  it,  settled  on  it,  tilled  it, 
in  any  way  whatever  improvechit  by  an  expenditure 
of  their  own  toil,  then  first  dawned  upon  their  minds 
the  idea  of  possession,  then   first  began  the  land  to 
be  possessed  of  value,  since  now  the  family  would 
justly  say  to  another.   If  you   want  this  field,  you /wW  ^'^'^  ^ 
must  give  us  an  equivalent  for  what  we  have  ex-  ^^  ^ 
pended  on  it.     If  the  transfer  took  place,  is  it  not 
very  plain  that  what  was  sold,  was  not  so  much  the ':x^ /(.v^vu,^.^ 
inherent  qualities  of  the  soil   as  the  result  of  thcr^v^at^   ^^^ 
efforts  expended  in  its  amelioration  ?     The  qualities  /'ri^.tx^IZ^ 
of  the  soil  lay  indeed  at  the  foundation  of  the  utility  ^^       ^^ 
of  the  parcel;   that  utility,  however,  had   been  m-,,i-^i, ^  ^ 
creased  by  the  efforts  of  men  ;  and  the  value  of  the  .    ^ 
parcel,  the  equivalent  rendered  in  return  for  it,  would  ,    ^ 
be  gauged,  in  general,  by  this  second  factor  in  the.^  v> 

utility.  The  first  family  received  the  soil  and  its'^^^**^ 
powers  gratuitously,  and  then  expended  a  series  of 
efforts  on  its  improvement;  but  a  similar  series  j  ,; 
of  efforts  bestowed  on  other  gratuitous  land  in  the*"^  Y  ' 
neighborhood  would  make  it  as  eligible  as  this 
now  is ;  if,  therefore,  the  family  insisted  on  more 
than  an  equivalent  for  their  exertions  actually  be- 
stowed on  the  land,  the  other  would  reply.  For 
as  much  labor  as  you  have  given  to  your  land,  we 
can  make  other  free  land  as  good  as  yours,  con- 
sequently we  can  give  you  no  more  than  a  fair  equi- 
valent for  your  efforts.  The  value  therefore  of  the 
parcel  sold,  would  be  determined,  not  by  the  gratu- 
itous elements  involved,  but  by  the  onerous  elements 
involved,  that  is  to  say,  by  the  efforts  already  made 
by  the  first  family  in  connection  with  the  land,  as 
compared  with  the  efforts  of  the  second  involved  in 


192  ELEMENTS    OF  POLITICAL  ECONOMY. 

the  remuneration  offered     It  is  not  possible  in  the 
nature  of  things  that  God's  bounty  to  the  whole  race 
rihould  be  thwarted  by  any  number  of  individuals 
through  exclusive  appropriation  on  their  part  of  this 
naA- o.ic^>u^ti>  bounty.      What    they    received    gratuitously,   they 
^^i;^^iXtf^,i^,    must  gratuitously  transmit;  what  they  have  wrought 
,  r— <   of  permanent  improvements  on  the  land,  they  may 

justly  demand  a  recompense  for,  and  can  secure  it. 
i  By  their  expenditure  of  efforts  they  have  saved  to  the 

u^tywtUy  ^ttA^  purchaser  a  like  expenditure  of  efforts,  and  for  these 
^<>*^^i^6      they  can  demand,  and  he  .will  be  willing  to  concede, 
;Y^JLJw^<nHr*       a  recompense;   but  if  they  go  further,  and  demand 
pay  for  the  natural  qualities  of  the  soil  which  God 
gave  and  they  have  not  improved,  for  the  sun  that 
shines,  and  the  rain  that  falls  on  it,  the  demand  is 
blocked  at  once  by  the  common  sense  of  the  pur- 
chaser.    He  replies:    There  is  land   enough  in    its 
natural   state,  with   inherent  qualities   as   good    as 
yours,  the  same  sun  shining  on  it,  and  just  as  much 
blessed  rain  falling  on  it,  which  I  can  have  for  noth- 
ing.    I  cannot  give  you  something  for  that  which 
costs  you  nothing,  and  which  I  can  get  for  nothing. 
JLl  k^'.Jh,'       ^^  ^^^^  ^^  there  is  abundance  of  land  still  open 
lCmJilhCf\^  ^^  occupation,  everybody  will  concede  that  this  line 
^ilU  Arb-^  ^^  argument  is  just,  and  that  the  general  value  of 
^^  V  t     o^  ,    *^"^  cannot  rise  above  the  estimated  measure  of  the 
.  X  human  efforts  actually  bestowed  on  its  improvement. 
^       .^"a  '^ho"gh  less  obvious  at  first,  the  principle  still  holds 
true  after  all  the  land  has  been  taken  up.    Improved 
farms  are  always  for  sale  in   every  country,  lands 
once  appropriated  and  ameliorated  are  perpetually 
changing  hands,  and  some  men   are  always  found 
willing  to  part  with  land,  as  with  anything  else,  for 


ON  LAND.  193 

what  it  has  cost  them.  If  some  proprietors  try  to 
exact  a  price  for  their  land  made  up  of  compensa- 
tion for  what  they  and  their  predecessors  have  done 
upon  it,  and  for  what  they  or  others  have  done  in 
some  proximity  to  or  connection  with  it,  together 
with  something  added  for  what  God  has  done  for  it, 
their  cupidity  is  usually  thwarted  by  the  readiness  of 
others  to  dispose  of  their  land  for  a  fair  equivalent 
of  their  own  or  others'  onerous  exertions.  Human 
motives  are  such,  and  everything  is  so  providentially 
arranged,  that  men  cannot,  as  a  rule,  sell  God's 
gifts;  it  would  be  derogatory  to  the  Giver,  if  they 
could. 

Lands  in  cities,  or  in  the  neighborhood  of  them;  oisiccw 
lands    of  unusual    fertility,   or   possessing   superior    ^ 
building  sites ;  lands  containing  rich  mines  or  a  re-        *^^^^<^ 
markable   water-power ;    sometimes    excite  extraor- 
dinary desires  to  possess  them,  and  bear  in  conse- 
quence  an    extraordinary    price.      Still   the   efforts, 
care,  and  abstinence  of  their  owners,  or  of  others, 
have   made   up   an   essential    part  of  their   present 
utility.     They  are  assimilated   in  the  law  of  their 
value  to  other  unique  products.     Of  such  lands  no 
market  rate  can  be  predicated,  because  competition 
has  no  play.     Their  utility,  like  every  other  utility 
that  underlies  value,  is   partly  the  contribution  of 
nature  and  partly  the  contribution  of  man,  but  com- 
petition in  this  case  has  not  its  usual  opportunity  to 
eliminate  from  its  action  on   price  that  portion  of 
the   utility  that  is  the   free   gift  of  nature.     Their  Pr^cc^^ 
price,  consequently,  is  only  gauged   by  the  service Vvsw  ^<,^ 
which  the  owner  can  render  the  purchaser  by  them,  v^!     q 
With   these    unimportant   exceptions,   which   them-  ' ' 


^MCO^tfl 


*y*J^4j)%J>A^''-^ 


194  ELEMENTS   OF  POLITICAL  ECONOMY. 

selves  come  with  precision  under  our  fundamental 
principles,  the  value  of  land  follows  the  law  of  other 
values,  arises  only  in  connection  with  human  efforts, 
is  open  to  free  competition,  is  not  affected  by  the 
utility-  that  comes  from  nature,  rests  back  upon  the 
4      right  of  making  efforts  for  one's  own  welfare,  and 
of  not  parting  with  the  result  except  for  an  equiv- 
f 'E^       alent,  is  a  clear  case  of  service  for  service,  and  varies 
...  like  other  values  under  the  law  of  demand  and  sup- 

C^K^-Wf  tW^>\ .  What  might  be  thus  inferred  from  the  nature  of 
tW)  \W^  yj,j^  the  case,  is  abundantly  confirmed  by  facts.  As  a 
^,  cmM/.vV  matter  of  fact  and  experience,  lands  are  absolutely 
valueless  until  some  portion  of  human  effort  has 
been  expended  on  them,  or  in  reference  to  them. 
They  may  have  utility,  but  they  have  no  value. 
Nobody  will  give  anything  for  them.  The  United 
States  government  has  been  selling  for  years  some 
of  the  best  lands  in  the  world  for  one  dollar  and  a 
quarter  an  acre,  and  this  after  the  lands  have  been 
surveyed  at  government  expense,  local  governments 
provided  for  the  settlers,  and  mail  facilities  and  other 
privileges  guaranteed  to  them.  The  same  govern- 
ment is  now  giving  away  similar  lands  in  home- 
steads to  actual  settlers,  merely  taking  for  the  title- 
deeds  nominal  fees,  whose  aggregate  amount  does 
not  begin  to  meet  the  expenses  incurred  in  connec- 
tion with  these  lands.  If  lands  had  value,  indepen- 
dent of  human  exertions,  then  would  the  English 
companies  and  individuals  who  received  grants  in 
the  seventeenth  century  of  vast  tracts  of  as  fertile 
land  on  this  continent  as  the  sun  ever  visited  in  his 
diurnal  revolutions,  have  become  rich  as  Crcesus ; 


ON  LAND.  195 

but  these  companies  and  individuals  did  not  become 
rich  at  all,  but  rather  poor.     The  amount  realized 
from  the  sale  of  their  lands  fell  far  short  of  reimburs- 
ing the  expenses  of  colonization;  and,  after  incurring 
debts  and  endless  vexations,  most  of  the  companies 
and  proprietors  were  glad  to  be  rid  of  their  lands  at 
any  price.     It  is  a  current  proverb  now  in  regard  to 
wild  lands  at  the  West,  that  the  more  a  man  has  of 
them  the  worse  off  he  is ;  and  it  is  a  maxim  also  in 
the   newer  settlements   everywhere,  that   improved '^^  ^*'*^  ^ 
lands  are  worth  the  present  value  of  the  improve^v^  UwU^ 
ments  and  no  more.     Mr.  Carey  is  at  pains  to  prove,  tK<^*4'- 
what  might  be  expected  beforehand,  that  the  value 
of  lands  in  old  countries  is  now  less  than  they  have  ^ 
cost  of  actual   human  efforts   in    their  subjug^ftion  /♦™' <J  "L 
and  improvement.     The  progress  of  capital  and  in-.vw^  C^ 
ventions  enables  similar  work  to  be  done  now  atLu^  /Juv- 
greater  advantage,  and  consequently  the  results  of  >/ in^vf^,!.^^ 
former  work  have  fallen  in  value.     While,  therefore,  vJUu  \ 
value  in  land  arises  solely  in  connection  with  human         ' 
efforts   of   some   sort  standing  in  some  relation   to 
that  land,  it  is  important  to  observe  that  the  value  I/^jJU^Im^ 
is  not  always   proportioned   to   those  efforts.     The  ttViiJJUt^ 
efforts  may  have  been  misdirected  ;  the  desires  cal-  ^^  oX^ 
culated   upon   may   have    taken    another  turn  ;  the  vw^nttCu. 
utility  sought   to    be    conferred    may   not   fin<l   the  aLL»r4^« 
requisite  natural  utility  underneath  ;   and  so,  there  k\        ^ 
is  a  greater  diversity  in  the  value  of  lands  than  in 
the  amount  of  efforts  expended  upon  them. 


It  is  also  worthy  of  remark  that  the  element  oi  j^       « 
profits  frequently  finds  place  in  the  price  of  lands.  »>»^*^ 
Land  may  be  purchased  and  held  a  long  time  with  f^'^i'^-^j 
a  view  to  ultimate  profits.     Little  may  have  been  %A^\ 


196  ELEMENTS   OF  POLITICAL  ECONOMY. 

done  for  the  land  originally,  and  little  in  the  mean 
time,  and  yet  the  ultimate  price  be  large,  because 
the  purchase-money  should  be  replaced  with  com- 
pound interest.  Abstinence^  therefore,  which  is  one 
form  of  effort,  has  often  to  do  with  the  value  of 
lands.  Also,  the  efforts  of  certain  men  put  forth 
exclusively  towards  ends  of  their  own,  as  in  locating 
a  railroad  or  a  manufactory,  may  benefit  the  lands 
of  other  men  as  much  as  efforts  put  forth  with  that 
direct  intent.  These  lands  become  thereby  more 
desirable  and  therefore  more  valuable. 

It  is  also  worthy  of  mention,  that  lands  do  not  rise 
in  price  under  a  depreciated  currency  so  promptly, 
ip^c^^Ud       and  probably  not  so  much,  as  commodities  do.    This 
i.ria,i^cy  </       has  been  widely  noted  in  this  country  of  late.     The 
'  \  reasons  are,  first,  that  lands,  being  more  stable  than 

commodities  are,  do  not  feel  the  same  necessity  of 
^iMl*^w  being  constantly  insured  against  still  greater  depre- 

ciation ;  and,  secondly,  that  as  a  depreciated  cur- 
rency makes  against  agricultural  products,  so  far  as 
any  part  of  them  is  exported,  lands  tend  to  diminish 
in  value  from  this  cause. 
2d,  The  powers  of  all  land,  under  more  laborious 
'^  ^Tf\\ 'Culture,  agricultural  skill  remaining  the  same,  are  sub- 
ject to  the  law  of  diminishing  return;  in  other  words, 
increased  labor  upon  it,  though  increasing  the  aggre^ 
gate  return  of  produce,  does  not  secure  an  increase 
proportioned  to  the  increase  of  labor, 

I  shall  use  the  short  term  "  produce  "  to  denote  ex- 
clusively what  might  be  expres.sed  by  the  longer  term 
"agricultural  product,"  although  I  am  not  sure  that 
good  English  usage  has  made  any  distinction  between 
"produce"  and  "product."     I  mean  by  it  all  the  fruits 


ON  LAND.  197 

of  the  earth  cultivated  for   the   sake   of  their  sale.^ 
The  above  is  the  fundamental  proposition  on  which  -*^-'  "^i^, 
Ricardo,  and  the  English  writers  generally,  lay  such 
stress,  and  on  which  they  found  the  law  of  Rent,  and 
the    necessity   of  restraints    on    population;    while  h^/''*^^*''" 
Carey  and  Bastiat,  impliedly  if  not  expressly,  deny 
the  proposition,  and  of  course,  the  inferences  deduced 
from  it.     In    my  judgment,  the  proposition  cannot  . 
be  logically  denied.     The  law  of  diminishing  return^"' J^jr*^"' 
from  land  is  a  law  of  Nature,  and  has  played  a  very  iJ.^^  ^ 
important  part  in  the  occupation  and  culture  of  suc- 
cessive portions  of  the  earth's  surface.     The  proof 
of  the   proposition  is  all  the  better  for  being  short  £^^/^,7j^^ 
If  by  doubling  the  labor  on  a  piece  of  land,  double 
the  produce  could  be  secured,  and  by  quadrupling  it, 
quadruple,  and  so  on,  there  would  be  no  reason  why 
any  man  should  ever  cultivate  more  than  a  square 
acre,  or  even  a  square  rod.     He  has  a  strong  motive 
to  confine  his  culture  to  a  small  space,  just  so  long 
as  the  amount  of  produce  is  in  the  ratio  of  the  labor 
expended,  because  there  is  less  locomotion  of  tools 
and  fertilizers  and  crops.     The  fact  that  he  extends 
his  culture  from  one  acre  to  another,  and  then  to 
distant  acres,   notwithstanding   the    inconveniences 
and   expense   of  transportation,    is   an   irrefragable 
proof  of  the  proposition  in  question.     Increase  of 
agricultural  labor  and  expenditure  on  a  given  space 
of  land  will  secure  a  larger  amount  of  produce,  but 
as  a  general  law,  the  increased  amount  will  not  be 
proportioned   to   the   increased   expenditure.      If  it 
were  thus  proportioned,  if  the  law  of  diminishing 
return  did  not  exist,  then,  for  purposes  of  agricul- 
tural production,  a  square  acre  is  as  good  as  a  con- 
tinent. 


198  ELEMENTS   OF  POLITICAL  ECONOMY. 

It  is  through  this  law  of  diminishing  return,  that 
the  Creator  has  secured  the  gradual  occupation  by 
•   '\  |-4  men  of  almost  the  whole  earth.     There  is  a  strong 
"'    *       tendency  to   leave  the  old  acres  to    advance   upon 
new,  the  old  countries  to  emigrate  to  new,  when- 
y    M>,t ^  ^^  ^^^^  ^j^g  returns  begin  to  bear  a  more  unfavorable 
>^"^'*'^^*'    ratio  to  the  labor  bestowed.      The  farmer  will  ad- 
vance from  the  first  to  the  second  acre  as  soon  as 
he  thinks  that  more  produce  can  be  obtained  from  it 
by  a  given  amount  of  labor  than  can  be  got  by  a 
like  expenditure  of  additional  labor  upon  the  first 
acre,  allowance  being  made  for  the  increased  incon- 
venience ;  and  so,  cultivation  has  gradually  extended 
itself,  and  men  have  become  dispersed  over  the  whole 
earth.     Other  principles  leading  to  dispersion  have 
undoubtedly  cooperated,  but  this  is  the  fundamental 
one,  operative  at  all  times,  changing  the  course  of 
population,  and  consequently  of  empire. 

Mr.  Carey  seems  to  think  that  this  proposition  is 
^•t^  dependent  on  another,  and  endeavors  to  break  down 

this  by  an  attempt  to  break  down  that  other.  That 
other  proposition  is,  that  in  the  course  of  occupation 
the  best  lands  are  entered  upon  first,  and  that  after- 
wards recourse  is  had  to  the  poorer  soils.  He  at- 
,    ^  tempts  to  prove  that  the  exact  reverse  of  this  is  the 

.  *  /^'  historical  fact,  that  cultivation  has  always  been 
begun  upon  the  poorer  soils,  and  that  afterwards 
the  river  bottoms  and  strong  lands  have  been  drained 
and  cleared  and  tilled.  This  discussion,  however 
interesting  in  itself,  is  irrelevant  as  far  as  the  law  of 
diminishing  returns  is  concerned,  because  that  law 
is  nowise  dependent  on  the  order  in  which  soils  of 
different  productive  power  are  entered  upon  in  cul- 


ON  LAND.  199 

tivatioa;  it  is  true  of  all  soils,  whether  rich  or  poor, 
f.vhether  entered  upon  in  the  order  of  their  fertility, 
or  in  the  inverse  order ;  and  I  cannot  help  thinking 
that  Mr.  Carey  puts  upon  this  matter  of  the  order 
of  occupation,  which  he  asserts  has  always  been 
from  the  poorer  to  the  richer  soils,  an  estimation 
altogether  disproportioned  to  its  importance.  When- 
ever men  have  entered  upon  new  countries,  they 
have  undoubtedly  selected  those  lands  first  which 
seemed  to  them  most  eligible,  reference  being  had 
of  course  to  their  present  means  of  subduing  them  ; 
and  whether  these  lands  proved  ultimately  to  be 
better  or  worse  than  other  parcels  which  they  might 
have  chosen,  is  a  point,  which,  however  determined, 
has  no  efFe(»,t  to  disturb  the  fundamental  proposition 
in  hand. 

Sd,  The  operation  of  the  law  of  diminishing  returns  1%  <->^  a  7 
is  retarded  by  all  improvements  in  agriculture. 

The  discovery  of  new  and  more  available  fertil-  iUr^^^t~*^vJ^ 
izers,  the  invention  of  better  agricultural  implements,  <^v>-^c>v^ 
the  light  thrown  by  chemistry  upon^  agriculture,  the 
consequent  adoption  of  better  methods  of  culture 
and  rotation  of  crops,  the  more  perfect  adaptation 
to  the  various  soils  of  the  kinds  of  produce  sought 
to  be  raised  from  them,  all  these  and  similar  im- 
provements tend  to  increase  the  ratio  of  the  produce 
to  the  labor,  and  disguise  the  law  just  established. 
The  lands  that  are  now  under  cultivation  may  be 
made,  under  more  skilful  modes  of  culture,  to  yield 
indefinitely  more  than  at  present,  and  the  vast  still 
uncultivated  lands  of  the  world  may  come  to  render 
an  incalculable  quantity  of  food  to  the  world's  pop- 
ulation ;    but   yet,   as   improvements   are    naturally 


200  ELEMENTS   OF    POLITICAL  ECONOMY. 

less  continuous  in  this  than  in  some  other  depart- 
ments of  production,  as  invention  has  less  play,  as 
there  is  less  opportunity  for  the  division  and  cooper- 
,w.  -  '  .  .-.     ation  of  labor,  as  nothing  can  materially  shorten  the  ^ 
^  i   €^^^  time  during  which  the  fruits  of  the  earth  must  ripen, 
^..Xh.^'vjuw^ '  it  is  certain  that  possible  improvements  will  never 
override  the  law  of  diminishing  returns;  and,  conse- 
^^j^^/U**^^^  quently,  that  the  value  of  agricultural  products  tends 
/lu  ^^-^vAxt  to  rise  relatively  to  manufactured  products  generally. 
•**'-  />rii^Uv.i.\  Labor,  for  a  reason  already  given,  and  produce,  for 
ir*^^*^'^^*  the  reasons  now  given,  have  risen  and  tend  steadily 
to  rise,  as  estimated  in  general  commodities. 
4th.   The  rent  of  land  is  the  measure  of  the  service 
^  which  the  owner  renders  to  the  actual  cultivator,  and 
does  not  differ  essentially  in  its  nature  from  the  rent 
of  buildings  in  cities,  or  from  the  interest  of  money, 

Mr.  Ricardo's  famous  doctrine  of  rent,  is  for  sub- 
stance, this :  there  are  some  lands  in  every  country 
'  ^  lt»^^^  whose  produce  just  repays  the  expenses  of  cultiva- 
/UrtJf^  tion,  and   consequently  yields    no  margin  for  rent ; 

and  the  cost  of  production  on  these  rentless  and 
poorest  lands  under  cultivation,  will  determine  the 
price  of  the  produce  ;  and  as  there  can  be  but  one 
price  in  the  same  market,  the  produce  raised  on  more 
fertile  lands  will  be  sold  for  the  same  price,  and  this 
price,  besides  paying  the  cost  of  production,  will 
yield  a  rent  rising  higher  according  as  the  land  is 
more  fertile ;  so  that  the  rent  paid  on  any  land  is 
always  a  measure  of  the  excess  of  productiveness 
of  that  land  over  the  least  productive  land  under 
paying  cultivation;  and  therefore,  an  increased  de- 
mand for  food  in  consequence  of  increased  popu- 
lation,  and   the    higher   price    resulting,    will   force 


ON  LAND.  201 

cultivation  down  upon  still  poorer  soils,  or  else 
compel  a  higher  culture  for  less  remunerative  returns 
on  the  old  soils,  according  to  the  law  of  diminishing 
returns,  which  in  either  case  will  raise  the  rents  on 
all  the  soils  above  that  grade  that  just  repays  the 
expenses  of  cultivation;  so  that  it  is  the  sole  interest 
of  landlords,  as  such,  that  population  should  be  dense 
and  food  high,  their  interest  being  directly  antago- 
nistic to  that  of  the  other  classes  of  the  community. 

This  very  ingenious  and  complicated  theory,  which  tVc^v't^C*- 
is  supported  by  many  other  authoritative  names  be- 
sides that  of  its  author,  is  too  mechanical  and  rigid 
to  be  a  good  scientific  statement  of  universal  facts. 
It  is  true  that,  if  150  bushels  of  wheat  are  raised 
each  with  x  hours'  labor,  and  50  each  with  x  -\-y 
hours'  labor,  and  200  are  wanted,  the  price  of  the 
whole,  offered  at  once,  will  not  be  below  the  rate 
X  -\-  y  for  the  whole  200  ;  but  this  fact  is  not  suffi- 
cient to  make  the  price  of  food  and  the  rent  of  lands 
anomalous  cases  of  value,  and  it  never  w'ould  have 
been  supposed  so,  had  not  England  been  under  infa- 
mous corn  laws  which  forbade  importations,  and 
made  everybody  tributary  to  landlords.  If  a  war 
breaks  out,  and  the  founders  have  only  150  cannon 
on  hand,  which  cost  re,  and  the  order  comes  for  200 
to  be  delivered  at  once,  of  which  fifty  will  cost  x-\'y; 
the  founders  will  as  certainly  be  paid  for  the  whole 
200  at  the  rate  x  ^^  y.  When  the  trade  in  corn  i« 
firee,  the  Ricardo  law  of  rent  loses  its  formidableness, ' '' 
and  the  simple  law  remains,  applicable  to  all  prod- 
ucts that  have  a  market-rate,  that  that  rate  must  be 
sufficient  to  compensate  the  cost  of  that  portion  pro- 
duced with  greatest  difficulty,  otherwise  that  portion 


202  ELEMENTS  OF  POLITICAL  ECONOMY. 

would  not  be  produced.     Of  course,  those  who  pro- 
duce   at  the   greatest   advantage   will  realize  extra 
gains  from  this  market-rate,  so  far  forth  as  their  ad- 
vantage does  not  depress  the  market-rate.     So  far  as 
lands  are  taken  on  shares,  or  on  permanent  leases, 
or  so  far  as  their  products  are  exchanged  directly 
against  other  commodities  and  services,  the  law  of 
Ricardo  has  little  application.     As  a  matter  of  fact, 
too,  there  is  sometimes  more  than  one  price  of  sim- 
*^*^ '»'*'»-^  <*  n  ilar  products   in   the   same   market-town,  although 
k«-<  e<M.^Ax4  there  is  a  strong  tendency  towards  one  price  of  sim- 
^  t*3f  ♦Y    ilar  goods  of  the  same  grade ;  and  prices,  especially 
*^^    prices  of  produce,  are  varying  all   the  while  from 
other  causes  than  those  affecting  the  cost  of  produc- 
tion.    The  following  seems  to  me  to  be  the  whole 
truth  in  regard  to  rent.     That  portion  of  utility  in 
>.uaV,    lands  that  is  the  free  gift  of  Nature  is  mostly  a  com- 
mon factor  eliminated  from  value  by  the  action  of 
competition,  as  in  the  horses  and  strawberries,  by 
which  illustration  was  made  in  the  chapter  on  Value. 
When  not  thus  eliminated,  that  part  of  the  utility 
may  raise  the  rent  as  well  as  the  price,  but  the  ex- 
ception in  either  case  is  practically  unimportant,  in 
both   cases  is  amenable  to  the  law  of  services  ex- 
changed, and,  the  exception  aside,  the  rent  of  lands 
is  a  simple  recompense  for  the  use  of  a  productive 
instrument,    made    such    by   human    efforts.       The 
owner  has  become  proprietor  of  all  the  results  of  the 
i-*W>-  o^    onerous  exertions  put  forth  upon  that  land,  or  in  any 
'"     connection  with  that  land,  and  allows  the  lessee  the 
use  of  these  results.      Because  the  owner  practises 
abstinence  in  the  lessee's  behalf,  rent  is  substantially 
the  same  ^^  profits;  and  as  gross  profits  include  the 


ON  LAND.  203 

wages  of  superintendence,  so  rent  also  partakes  of 

the  nature  of  wages,  so  far  forth  as  the  owner  still 

takes  an  active  supervision  of  his  property.     Frox-flu^  flUf^ 

imity  to  markets,  degree  of  fertility,  state  of  im prove- ^■^^-^^'^ 

ments,  and  the  variations  of  supply  and  demand, 

will  influence  rent. 

5th»  That  division  of  land  is  best  for  purposes  of  ^V^v<^v.  < 
production,  which  gives  farms  approximately  equal  in  i*"^**5  ^ 
size  to  the  cultivators  ;  and  the  best  tenure  is  the  fee- 
simple. 

Taking  the  last  part  of  the  proposition  first,  the^^  .&a^ 
fee-simple  is   better  for  production   than  any  other  vA^^jua 
tenure,  because  when  one  owns  the  land  he  tills,  he 
takes  a  greater  interest  in  it,  it  is  his  own,  he  has  a 
constant  motive  to  improve  it,  to  make  the  produc- 
tion from  it  as  great  as  possible,  since  all  it  pro- tjLLuJt' o>^ 
duces  is  his  own.     K  men  work  from  motives,  andnixu  y^ 
if  the  energy  and  persistence  of  the  work  be  propor- 
tioned to  the  constancy  and  press  of  the  motives, 
then  will   the  fee-simple    most  certainly  make   the 
aggregate  of  produce  greater  than  any  other  tenure 
of  land.      Moreover   the    fee-simple   immeasurably  **^ 
improves    the   character   of    the    cultivators.      The 
masses   of   men    are    educated    and   developed   by 
nothing  so  much  as  by  the  ownership  of  land.    It 
tends  to  make    them  industrious,  thrifty,   indepen- 
dent, hopeful  of  the  future,  anxious   to   give  their 
children  better  privileges,  as  well  as   better  lands, 
than  they  themselves  had.     The  testimony  on  this 
point  is  abundant  from  many  countries,  and  it  all 
goes  to  show  that  the  peasant  proprietor  is  a  hap- 
pier and  more  virtuous,  as  well  as  a  more  industri- 
ous and  productive  man,  than  the  mere  tenant  and 


204  ELEMENTS  OF  POLITICAL  ECONOMY. 

farm-laborer;  while   similar   testimony,  as  well    as 
common  observation,  proves,  that   lands  under  the 
copyhold    tenure,    or    leased    at  will,   are    far   infe- 
rior in  point  of  improvements  and  production,  to 
contiguous  lands  held  in  fee-simple.     The  zeal  of 
absolute   ownership,  especially  if   it   be    a   limited 
ownership,   has   been   observed    to    produce    almost 
magical    effects,   as  well   upon   character   as   upon 
lands,  transforming  after  a  while  the  poorest  into 
excellent  lands,  and  thriftless  and  desponding  labor- 
ers into  frugal  and  enterprising  proprietors. 

The  practical  play  of  the  fee-simple  draws  after 

y^-jkx<;^^  a        it  such  a  division  of  lands  into  farms   moderately 

large  and  approximately  equal,  as  can  be  shown  to 

.^»..y.      be  most  favorable  to  the  largest  aggregate  produc- 

;......!../   tion.     Wherever  there  is  no  primogeniture  and  no 

entails,  and  owners  can  consequently  sell  a  part  or 

all  their  lands,  whenever  it  is  their  interest  to  do  so, 

lands  naturally  fall  into  those  hands  which  are  most 

'r^W<4^^^P^^^®  ^^  "s^"g  *h6J^  productively,  because   such 

-o^t.^Kai'       persons  can  afford  to  pay  more  for  them  than  any- 

et^<^  ;vu  body  else;  and  the  division  that  follows  this  impulse 

^Ki^^^^xiA .      of  self-interest    and    this   freedom    of   exchange    is 

likely  to  be  into  farms  tolerably  equal  in  extent  and 

moderately  large.     Such    a   division   has   naturally 

taken  place  in  New  England,  in  the  Middle  States, 

,  ^        and  at  the  West ;  while  in  the  South,  the  institution 

^^*^/  '  '  ^        of  slavery   led  to  the  system  of  large   plantations 

and  few  land-owners,  which  system,  I  believe,  will 

now,  under  the  auspices  of  freedom,  give  way  to  the 

better  system  of  small  farms  and  numerous  proprie- 

tors.     That  the  latter  system  is  more  profitable  in 

reference  to  production,  as  well  as  advantageous  in 


ON  LAND.  205 

point  of  national  character  and  a  broadly  based  and 
sound  development  of  the  national  resources,  is  evi-v..  yy—  -i 
dent  from  a  few  considerations,  and  has  been  exem- ^'^>W'«-w^ 
plified  distinctly  in  the  diverse  experience  in  this 
respect  of  France  and  England.  1.  When  the 
mass  of  the  agricultural  population  are  owners  of 
the  soil  they  till,  the  motives  to  productive  culti- 
vation are  brought  to  bear  most  universally.  These 
motives  are  interest  and  hope.  There  is  a  high 
pleasure  in  possession,  and  in  self-guided  exertion, 
a  strong  stimulus  to  get  as  much  as  possible  from 
the  land,  and  at  the  same  time  to  keep  good  and 
ever  improve  its  condition.  When  the  great  body 
of  the  land  of  any  country  comes  under  the  action 
of  such  motives  as  these,  then  will  the  amount  of 
production  be  the  greatest.  2.  Aristotle  quotes  from 
"  the  African  "  the  saying  that  the  best  manure  for 
the  land  is  the  foot  of  the  owner ;  a  saying  which 
is  often  attributed  to  Dr.  Franklin,  and  which  is  as 
true  as  if  its  origin  did  not  date  back  some  centuries 
before  Christ.  Franklin  had  read  Aristotle.  Personal 
supervision,  to  be  most  effective,  must  be  limited  in 
its  sphere ;  and  the  best  agricultural  knowledge  and 
skill  becomes  comparatively  weak  when  it  attempts 
to  exhibit  itself  on  too  broad  a  surface.  Because  a 
man  can  cultivate  one  hundred  acres  better  than  any 
of  his  neighbors,  it  does  not  prove  that  he  will  cul- 
tivate fifty  acres  additional  to  them  better  than  a 
neighbor  of  inferior  skill,  who  is  the  owner  of  those 
fifty  and  no  more.  3.  The  possession  of  small  free- 
holds educates  and  gives  energy  to  the  masses. 
That  educates  a  man  which  calls  forth  varied  efforts 
of  intelligence  and  will.     To  protect   and  advance 


203  ELEMENTS  OF  POLITICAL  ECONOMY. 

his  own  interests,  to  attend  upon  the  seasons,  to 
watch  and  wait^  to  foresee  and  plan  and  labor,  all 
this  will  secure  that  a  nation  of  freeholders  will 
never  be  a  nation  of  ignorant,  indolent  barbarians. 
4.  National  strength  is  best  secured  and  main- 
tained wherever  there  is  a  broad  basis  of  indepen- 
dent yeomanry  to  lean  back  upon  when  heavy  taxes 
are  to  be  raised  and  strong  blows  of  battle  are  to  be 
struck  in  behalf  of  the  nation. 

France  and  England  are  instructive  examples  in 
this  whole  matter.  In  France,  since  the  abolition 
of  aJl  entails  and  primogenital  rights  by  the  revolu- 
tion of  1789,  and  under  the  action  of  the  law  requir- 
ing the  equal  partition  of  a  man's  landed  estate 
among  his  children,  the  lands  have  become  subdi- 
vided into  small  parcels,  averaging  about  fourteen 
acres  to  each  owner.  Out  of  a  population  of 
37,500,000,  8,897,000,  or  nearly  one  fourth,  are  pro- 
prietors of  land  either  in  town  or  country.  Of  im- 
proved and  unimproved  lands  there  are  in  France 
about  122,500,000  acres  owned  by  individuals.  The 
number  of  different  lots  of  land,  however,  is  about 
140.000,000,  or  considerably  less  than  an  acre,  on  the 
average,  to  each  lot.  About  ten  of  these  lots,  on 
the  average,  are  included  in  one  assessment  of  the 
land-tax;  the  whole  number  of  such  assessments 
being  14,123,117.  Of  these  fourteen  million  as- 
sessed properties,  more  than  seven  million  are  worth 
less  than  $1,000 ;  more  than  two  million  are  worth 
between  $1,000  and  $2,000;  nearly  two  million 
more  are  worth  less  than  $3,000 ;  while  only  53,000 
properties  are  worth  more  than  $100,000.  The  esti- 
mated value  of  all  these  lands  is  $31,000,000,000 ; 


ON  LAND.  207 

and  the  annual  net  income  $937,500,000.  These 
figures,  which  are  all  taken  from  the  official  returns 
of  the  French  government  for  the  year  1866,  are  very 
significant  of  the  beneficial  results  of  the  land  sys- 
tem of  France.  In  point  of  a  regular  increase  of 
agricultural  products;  in  point  of  an  industrious, 
frugal,  cheerful  peasantry ;  in  point  of  a  very  general 
desire  and  ability  to  purchase  land;  in  point  of 
showing  that  subdivision  ceases  so  soon  as  the  lands, 
if  divided  further,  would  be  less  profitable  in  produc- 
tion ;  in  point  of  pauperism ;  in  point  of  national 
strength  and  weight,  in  spite  of  a  centralized  and 
repressive  government;  in  point  of  an  ability  in  the 
peasantry  to  loan  to  government,  in  an  exigency, 
large  sums  of  money  in  the  aggregate ;  a  long  expe- 
rience has  shown  that  the  practical  workings  of  this 
division  have  been  most  happy. 

In  England,  on  the  other  hand,  the  monster-farm 
system  prevails,  the  small  proprietors  have  mostly  dis- 
appeared, the  law  of  entails  and  leases  ties  up  the 
landed  estates  from  sale  and  division,  less  than  150 
persons  own  one  half  of  all  the  lands  in  England; 
and  not  more  than  ten  or  twelve  persons  are  in  pos- 
session of  one  half  of  all  the  land  in  Scotland.  The 
national  results  of  this  system  are  what  we  should 
expect  they  would  be.  There  are  upper  and  middle, 
and  lower  and  lowest  classes,  but  a  homogeneous 
English  people  are  not  to  be  found.  Particular  re- 
sults are  seen,  in  part,  in  what  has  been  justly  called 
the  irretrievable  helotism  of  the  laboring  classes;  in' 
an  average  of  1,169,043  persons  in  the  three  king- 
doms relieved  by  means  of  the  poor-rate  on  a  speci- 
fied day  during  twenty-three  years,  from  1849  to  1871 


208  ELEMENTS   OF  POLITICAL  ECONOMY. 

.  •  '  ,  both  inclusive,  of  whom  on  the  average  207,890  were 
-  jU/l/M^g^l^lg_j^^^^  adults;  in  an  annual  poor-rate  raised 
^  O&M^nA*^  by  taxation  of  $53,187,225  during  the  twenty-three 
years  on  an  average,  some  of  which,  however,  was 
expended  for  other  purposes;  in  unmeasured  ine- 
quality in  fortunes  and  comforts ;  in  the  lack,  felt 
alike  in  war  and  peace,  of  a  large  class  of  sturdy 
yeomanry,  the  strength  of  a  state ;  and  in  a  consse- 
quent  sinking  of  relative  position,  power,  and  influ- 
ence, former  times  being  held  up  with  the  present, 
as  compared  with  France  and  the  other  first- class 
powers.  No  degree  of  merit  in  the  other  parts  of 
the  English  system,  can  ever  compensate  the  want 
of  just  and  broadly  liberal  laws  of  land.  Still,  the 
merits  of  other  parts  of  the  system  are  alleviating 
results  even  here.  Wages  are  rising.  Pauperism 
is  steadily  declining.  Only  784,006  persons  in  Eng- 
land were  in  receipt  of  relief  on  the  1st  of  July,  1874. 
The  estimated  population  of  that  kingdom  at  that 
date  was  23,649,000  souls;  the  ratio  of  paupers,  ac- 
cordingly, to  the  whole  population  was  then  but  3.32 
per  cent.  The  ratio  on  the  corresponding  day  in  1873 
was  4.70  per  cent.  203,866  fewer  persons  received 
public  charity  in  1874  than  in  1870,  the  comparison 
being  made  on  corresponding  days  of  each  year.^ 

The  "  encumbered  estates  law,"  applicable  only 
to  Ireland,  passed  by  Parliament  in  1848,  has  had 
the  beneficial  effect  of  multiplying  the  number  of 
landed  proprietors  in  that  island.  Under  this  law 
•there  can  be  brought  into  market,  in  whole  or  in 
parts,  estates  encumbered  with  debt,  and  thus  shut 

1  Pall  Mall  Gazette. 


Jf 


ON    LAND.  209 

out  from  improvement.  "  The  proceeds  of  the  sale 
are  paid  into  the  Court  of  Chancery,  to  be  distributed 
by  that  court  as  equity  may  require,  between  the 
owner,  his  creditors,  the  various  encumbrancers,  the 
heirs  at  law,  and  all  other  interested  parties."^  Thus 
millions  of  acres  of  heavily  mortgaged  lands  have 
passed  from  the  hands  of  their  nominal  owners  into 
the  hands  of  absolute  proprietors,  whose  title  is  per- 
fect because  parliamentary,  and  whose  interest  and 
zeal  are  said  to  have  changed  already  the  face  of 
their  lands.  In  the  first  five  years  of  this  system, 
more  than  one  tenth  of  all  the  landed  property  in  the 
island  was  sold  in  the  Irish  Encumbered  Estates' 
Court ;  and  the  land  thus  sold  was  divided  into 
about  five  times  as  many  distinct  estates  as  before. 
Up  to  1870,  the  value  of  the  lands  sold  in  this  way 
amounted  to  $170,182,015.  There  are  20,815,460 
acres  of  land  in  Ireland.  The  population  in  1871 
was  5,402,759.  The  proportion  of  paupers  to  the 
population  in  1870-74  was  only  1.30  per  cent.  The 
average  death-rate  during  the  same  years  was  1.67 
per  cent,  of  the  population,  while  the  death-rate  in 
England  was  2.25.  Recent  parliamentary  legisla- 
tion has  relieved  the  Irish  of  their  forced  tribute  to 
the  English  Church ;  and  the  hope  may  be  indulged 
that  Ireland  has  already  entered  upon  a  period  of 
substantial  improvement  and  prosperity. 

1  Bo  wen's  Political  Economy.     1st  ed.,  page  521. 
14 


210      ELEMENTS  OF  POLITICAL  ECONOMY. 


CHAPTER  IX. 

ON  COST  OF  PRODUCTION. 

We  are  now  in  position  to  be  able  to  analyze  the 
cost  of  production,  and  to  bring  forward  some  sup- 
plementary matters  relating  to  value,  which  could 
not  be  properly  discussed,  until  the  subjects  of  labor, 
capital,  and  land,  were,  at  least  in  their  ground  prin- 
ciples, understood.  While  we  were  inquiring,  in  the 
^U  m^-" ^  chapter  on  value,  whether  such  a  thing  as  a  measure 
r      1  of  value  were  possible,  it  was  remarked  that  some 

political  economists  have  thought  that  the  cost  of 
production  of  any  commodity  is  the  most  accurate 
measure  of  its  general  purchasing-power;  and  it 
might  have  been  added,  that  these  writers  consider 
that  there  is  such  a  thing  as  natural  value  distinct 
from  market  value,  that  natural  value  is  the  cost  of 
production,  and  that  market  value  oscillates  perpetu- 
ally around  that,  and  tends  constantly  to  return  to  it. 
How  far  these  views  are  just,  how  far  cost  of  pro- 
duction constitutes  a  law  of  value  within  the  all- 
comprehending  law  of  demand  and"  supply,  is  the 
point  to  which  attention  is  now  directed. 

It  is  noticeable,  that  while  almost  all  people  put 
forth  onerous  efforts  to  satisfy  the  present  and  imme- 
diately prospective  wants  of  other  people,  in  view  of 
receiving  back  from  them  corresponding  efforts  to 
satisfy  their  own  present  and  immediately  prospec- 


ON  COST  OF  PRODUCTION.  211 

tive  wants,  there  are  some  people,  who  have  both 
foresight   and   capital,  who   set  to   work   to   make 
preparations  in  reference  to  services  which  they  ex- 
pect to  render   some  time  in  the  future;  and  it  is 
evident  that  this  matter  of  the  cost  of  production 
has  an  especial  bearing  upon  those  classes  of  pro- 
duction in  which  permanent  investments  are  made, 
looking  to  future  rather  than  to  present  exchanges. 
It  becomes  necessary  to  attend  to  cost  of  production  {/J^  pi*^ 
simply  because  cost  of  production  is  sometimes  an  .Cj-y^^  Vu-<^ 
exact  measure  of  one  of  the  elements  out  of  which 
value  springs,  namely,  the  element  of  effort.    When 
a  surgeon,  for  example,  charges  fifty  dollars  for  cut-.j        -   (y 
ting  off  a  man's  leg,  cost  of  production  is  an  imper-      ^^  ^*^ 
tinent  phrase  in  relation  to  such  a  service,  and  is  no'*^^'^   ' 
measure  of  the  effort ;  but  when  a  capitalist  invests'/Ju  *^|U/^Uo , 
$20,000   in   a   cutlery   establishment,    hires   all   his'*^'^*'*^ 
labor,  and  at  the  end  of  the  year  has  produced  5000  ^  ^o'jrrT"  *^ 
knives,  cost  of  production  has  a  definite  meaning  as 
applied  to  each  one  of  the  knives,  and  is  an  accu- 
rate measure  of  the  one  element  of  effort,  which 
goes,  together  with  other  elements,  to  determine  its 
value.     It  is  not  true  at  all  that  cost  of  production 

alone  determines  the  value  of  the  knife,  or  is  a  meas- 

-■ ^  —         •  ■  ■     ' 

ure  of  the  value  of  the  knife,  but  it  is  true  that,  in 
this  case,  and  in  all  cases  in  which  a  commodity  is 
produced  by  a  definite  capital  invested  for  a  fixed 
time,  and   by  labor  wholly  hired,  or  estimated   as    r       . 
hired,  the  cost  of  production  is  an  exact  measure  of  ^^^^^^^•''  ^ 
one  of  the   four  elements  which   go   tq^  determine  ^V"^^^""* 
value,  namely,  of  one  effort.     Now  let  us  suppose  Mcijvct^vt 
that  when  these  knives  are  exposed  for  sale,  no  such 
return  efforts  are  offered  for  them  as  are  estimated  ^^"  ^^  ' 


212  ELEMENTS  OF  POLITICAL  ECONOMY. 

Yxt  f*.   /H    by  the  maker   as   compensatory  and  remunerative. 
.  He  may,  in  order  to  avoid  a  still  greater  loss,  sell 

^4  trfv^.^^-  ^.^  knives  below  the  cost  of  their  production,  but  it 
..^  C,  A  '  .g  evident  that  he  will  not  go  forward  at  present  in 
his  enterprise  of  making  knives.  He  will  suspend 
operations,  or  withdraw  from  the  business ;  and  his 
action  in  this  respect  will  affect  the  supply  of  knives 
to  lessen  it;  and  the  next  equalization  of  demand 
and  supply  will  be  likely  to  adjust  a  market  value 
more  favorable  to  knife-makers.  Or  if,  when  the 
knives  are  exposed  for  sale,  they  meet  with  an  ex- 
change at  very  remunerative  rates,  our  capitalist  is 
now  stimulated  to  increase  his  production,  to  put  back 
his  profits  into  his  business,  and  perhaps  to  invest  in 
it  additional  principal.  His  action  in  this  respect  will 
affect  the  supply  of  knives  to  increase  it ;  and  the 
next  equalization  of  demand  and  supply,  or  if  not 
the  next,  some  subsequent  one,  will  be  likely  to  ad- 
just a  new  market  value  less  favorable  to  knife- 
mM-jC*"^/  makers.  Thus  it  is  seen,  that  absolute  cost  of 
production  influences  value  not  directly,  but  re- 
liLuctvcv  motely,  through  its  influence  on  supply.     To  sup- 

pose and  to  say  that  the  cost  of  production  of  one 
v^^'C  {(Kijj^h.  commodity  determines  its  value  in  an  exchange  with 
«»^/v^  iv^eM  another,  is  to  perpetuate  the  old  mistake  of  ignoring 
y,.^^CU>*v  U^>  the  second  commodity,  is  to  reiterate  the  fallacy  that 
'^Zi^^^XjiX   v^l^^  ^s  ^^  independent  quality  of  one  thing,  is  to 
confuse   the   whole   subject   of    value.     When   the 
writers  referred  to   speak   of  the    "natural   value" 
^Lw,^  v^jt  *  *>f  any  commodity,  they  mean  its  absolute  cost  of 
production  ;    but,  at   this   stage   of  our  inquiry,  it 
Burely  cannot  be   necessary  to  repeat  the  thought 
already  so  often   expressed    in    substance,  that    an 


ON  COST  OF  PRODUCTION.  213 

analysis  of  one  component  part  falls  far  short  of  de- 
termining the  resultant  of  four  component  parts.  I  "W^v  -vw^ 
do  not  think  the  expression  "  natural  value  "  is  cal-AU^-*^  . 
culated  to  be  useful.  From  the  very  meaning  of  the 
word  "  value,"  if  it  is  to  have  any  consistent  mean- 
ing at  all,  there  can  be  no  other  kind  of  value  than 
market  value,  that  is,  value  in  exchange. 

But  while  all  this  will  doubtless  be  conceded  to 
be  just,  there  are  other  points  of  view  in  which  the 
cost  of  production  of  any  commodity  comes  to  be  a 
very  important  matter.    From  its  obvious  relations  to 
supply,  already  exemplified,  it  is  constantly,  though 
indirectly,  influencing  the  value  of  the  commodity 
itself;    and   in   respect   to   permanent   investments, 
looking  solely  to  future  production,  it  becomes  the 
main  inquiry ;  because,  while  the  cost  of  production 
can    never   determine  the  purchasing-power  of   the 
product,  it  is  always  one  element  in  determining  it ;  '^ 
and  also,  especially,  because  the  improvements  which    ^^'^^^ 
are  all  the  time  being  introduced  into  the  mechani-  -><'<-'* — 
cal  and  other  processes  of  such  production,  which /i<*c*c<*4 
improvements  always  tend  to  lessen  the  cost  of  the  v^l^xix  ^  <- 
product,   have  the   efliect  to  lessen  the  value  of  dXiluJi*^^ 
permanent  investments,  unless  similar  improvements  ^^iMay 
be  inaugurated  in  connection  with  them.    The  march  *'j^^  "^  ' 
of  improvement  is  so  constant,  that  old  machinery 
and    old   processes  are  rapidly  ^depreciated ;  and  a 
calculated  cost  of  future  production  in  one  establish- 
ment is  almost  sure  to  be  disturbed  by  new  labor- 
saving   inventions   in  other  similar  establishments, 
which  will  be  able  in  consequence  to  offer  the  com- 
modity at   a  lower  rate   than  the  rate  estimated; 
in  which  case  the  value  of  the  product  wUl  not  con* 


214  ELEMENTS  OF  POLITICAL  ECONOMY. 

form  to  the  estimated  or  even  actual  cost  of  produc- 
tion in  that  establishment,  but  will  pitilessly  fall  to 
the  point  at  which  similar  commodities  are  offered 
by  the  more  fortunate  producers.  For  these  reasons 
we  must  inquire  carefully  after  the  elements  of  cost 
of  production. 
Pjiuu^  i^fTl^  These  elements  are  two;  cost  of  labor,  and  cost 
*y^i^lKi4^tX^:of  capital.  These  are  the  only  onerous  elements 
that  enter  into  production.  Assisting  the  processes 
are,  indeed,  the  natural  powers  of  land,  water,  wind, 
steam,  electricity,  and  so  on,  but  as  these  are  always 
gratuitous,  they  form  no  element  of  cost.  Labor 
must  have  its  wages,  and  capital  must  have  its 
profits,  and  also  a  sinking-fund  from  which  to 
replace  the  original  capital  when  worn  out  or  ex- 
pended. It  will  be  in  vain  to  search  for  any  other 
ingredient  of  cost  than  these  two.^ 

1.   By  cost  of  labor  is  meant,  of  course,  its  cost 

Pilfrr\  to  the   employer,  and   not  to   the   laborer   himself, 

in  reference  to  whom  the   phrase  would    have  no 

^  .    definite  meaning.     Now,  if  we  make  an  exhaustive 

^*^^^.  analysis  of  the  cost  of  labor  to  the  employer,  we 

shall  find  that  there  are  three  thijigs,  and  only  three 

vtw^ti  uv  things,  that  go  to  determine  its  cost.     1.    Efficiency 

,,  .        "of  the  labor.     2.    The  rate  of  nominal  wages  paid. 

3.    The  cost  of  that  in  which  the  wages  are  paid. 

To  illustrate  each  of  these  in  order: — If  a  capitalist 

hires  two  men  to  work  for  him  at  the  same  rate  of 

wages,  and  if  the  one  is  twice  as  efficient  a  laborer 

as, the  other,  the  cost  of  his  labor  to  the  capitalist  is 

one  half  less  than  the  cost  of  the  other's  labor.    The 

first  element  of  the  cost  of  labor  is  its  efficiency     If 

a  capitalist,  accustomed  to  pay  one  dollar  a  day,  is 

1  Compare  J.  S.  Mill's  Political  Economy,  book  iii  chap.  4. 


ON  COST  OF  PRODUCTION.  215 

now  obliged  to  pay  one  dollar  and  a  half  a  day  to 
his  laborers,  their  efficiency  remaining  the  same,  the 
cost  of  labor  is  increased  in  the  ratio  of  2  to  3.  The 
second  element  is  nominal  wages.  If  that  com- 
modity, whether  money  or  other,  in  which  wages 
are  paid,  varies  in  cost  to  the  capitalist,  the  cost  of 
the  labor  compensated  by  that  commodity,  nominal 
wages  and  efficiency  remaining  the  same,  is  varied 
thereby  of  course.  We  shall  discover  in-  the  next 
chapter  that  the  value  of  money  is  by  no  means 
invariable,  as  we  have  already  learned  the  variable 
nature  of  all  other  values,  and  accordingly  the  third 
element  of  cost  of  labor  is  the  cost  of  that  in  which 
the  labor  is  paid.  It  is  easy  to  see  that  there  is 
nothing  else,  aside  from  these  three  things,  that  can 
ever  affect  the  cost  of  labor.  This  analysis  is  not 
given  here  for  its  own  sake  merely,  but  for  some 
ulterior  purposes,  of  which  the  first  is  to  show,  how 
various  are  the  ingredients  that  enter  into  the  com- 
putation which  men  ought  rationally  to  make  before  ; 
engaging  in  extended  enterprises  of  production.  - 
They  must  make  calculations  on  the  prospective*if  f^^^'^ 
cost  of  production,  since  that  is  one  element  that 
will  determine  the  value  of  their  future  product.  In 
doing  this  they  must  calculate  the  cost  of  labor,  and 
the  cost  of  capital;  and  the  cost  of  labor  alone 
involves,  as  we  have  just  seen,  three  variables,  no 
one  of  which  can  be  safely  neglected  in  the  sup- 
posed estimation. 

The  second  purpose  is  to  explain  ixom  the  analy- 
sis, that  a  great  diversity  of  nominal  wages  may 
exist  in  different  countries  without  necessarily  affect- 
ing the  cost  of  labor.     If  English  wages,  for  exam- 


216  ELEMENTS  OF  POLITICAL  ECONOMY. 

pie,  are,  nominally,  one  half  wages  in  the  United 
States,  it  is  very  poor  logic  to  jump  to  the  conchi- 
sion,  that  the  cost  of  labor  in  England  is  one  half 
less  than  in  the  United  States.     That  will  depend 
partly  on  the  efficiency  of  the  labor,  and  partly  on 
the  cost  of  that  in  which  the  respective  labor  is  paid. 
If  English  laborers  are  only  one  half  as  efficient  as 
American  laborers,  then  a  difference  of  one  half  in 
;  A^ i»^H,^x.l^^^  nominal  wages,  cost  of  money  in  the  two  countries 
,  ^i.\,^  9^^«*  being  the   same,  will  occasion  no  difference  at  all 
T^lZje^t/h    in  cost  of  labor.     Because  nominal  wages  in  Eng- 
..^^i>^/.    land  are  lower  than  with  us,  many  people  think  and 
»  '  maintain,  that  the  English  have  an  advantaa^e  over 

US,  whereas  it  is   notorious,  and  admitted  even  by 
themselves,  that  American   labor  is    more   efficient 
than  English  labor,  and  therefore  there  is  no  such 
'^*^*^^^  '^'^    difference  in  cost  of  labor  as  the  difference  in  nom- 
inal wages  would  indicate,  even   if   there    be    any 
difference  in  cost  of  labor  at  all.     Just  at  this  point 
great  confusion  has  existed  in  the  popular  mind,  and 
some  by  no  means  harmless  fallacies  are  still  current, 
arising  from  the  want  of  a  due  analysis  of  the  cost 
of   labor.     It   is   probable,  all    the  elements   being 
.  /     ty-y    allowed  for,  that  the  cost  of  labor  in  one  country  is 
^''  ^       not  very  widely  different  from  its  cost  in  other  coun- 
7fu*{>y£  '^^  tries;  because,  if  there  were  much  difference,  there 
^y  C»-^,  *-     would   be  a  greater  difference  than  is  actually  ob- 
^^*-^f^y^      served  in  the  rate  per  cent,  of  capital;  and  this  con- 
j^.^*y7-v  i' ,  elusion  is  strengthened,  when  it  is  remembered,  that 
in  those  countries  in  which  the  cost  of  labor  is  sup- 
posed to  be  low,  as  in  England,  the  rate  per  cent,  of 
capital  is  also  low;  and  in  those  countries,  as  the 
United  States,  in  which  the  cost  of  labor  is  sup- 


ON  COST   OF  PRODUCTION.  217 

posed  to  be  high,  the  rate  per  cent,  is  also  high. 
Before  leaving  this  point,  I  wish  to  remove  one  or 
two  causes  of  misapprehension,  which  have  fre- 
quently infected  discussions  of  wages.  The  terms 
"  high  and  low  wages,"  are  often  used  ambiguously;./^  .j)  -v/ 
some  meaning  by  the  words,  a  high  or  low  nominal^^  'm 
rate ;  others,  a  high  or  low  degree  of  comforts  en-  -^.^i  t 
joyed  by  the  laborers,  as  the  fruit  of  their  wages ; 
others,  still,  as  Ricardo,  using  the  words  high  and 
low  in  relation  only  to  profits,  in  which  last  sense, 
if  wages  are  high,  profits  are  low,  and  conversely. 
In  the  first  two  senses,  wages  and  profits  may  both 
be  high,  or  both  be  low,  at  the  same  time  and  place, 
but  not  in  the  last  sense.  When  the  first  sense  is 
meant,  the  expression  should  be  money  wages;  when 
the  second,  real  wages;  when  the  third,  relative 
wages.  Had  this  nomenclature  been  adopted  and 
consistently  employed,  many  an  angry  dispute  and 
many  a  false  conclusion  would  have  been  avoided. 
Also,  it  has  been  thought  by  some,  that  high  money 
wages  create  high  prices  of  commodities,  that  is  to 
say,  that  things  are  dear  because  laborers  have  been 
paid  a  high  price  for  their  agency  in  producing  them. 
This  does  not  follow.  Their  labor  may  be  very 
efficient,  and  may  be  assisted  by  first-rate  machinery, 
and  the  price  of  the  commodities  may  be  low, 
although  the  money  wages  may  be  high.  Money 
wages  must  not  be  confounded  with  cost  of  labor, 
because  it  is  only  one  element  of  cost  of  labor.  A 
higher  cost  of  labor  in  any  department  of  produc- 
tion, other  things  being  equal,  will  tend  to  raise  the 
price  of  the  product,  but  not  higher  money  wages 
alone      Price  is  value  expressed  in  money,  and  gen- 


;'  '      218  ELEMENTS  OF  POLITICAL  ECONOMY. 

eral  rise  or  fall  of  prices  is  usually  due  to  changes 

.  in   the    currency.     An    inflated    currency   produces 

y^^o^M^yr.    jjjgjj  prices,  first  of  commodities,  later  of  labor,  later 

i^,^»^jy^^       still  of  land,  and  last  of  all  if  at  all  of  produce, 

^Tp^^^^i^'^    some  part  of  which  is  exported,  and  whose  whole 

price  tends  to  be  the  foreign  price  of  that  part.     A 

common  cause  raises  both  labor  and  goods.     On  the 

other  hand,  it  is  sometimes  supposed  that  the  exact 

reverse  of  this  takes  place,  and  that  money  wages 

become  high  simply  because  the  commodities  which 

the  laborers  consume  have    become   high.     This  is 

an  error  similar  to  the  other.     If  an  inflation  of  the 

volume  of   the   current  money  of  the  country  has 

r    .  supervened,  then  the  price  of  labor  rises  by  the  same 

^    -v  Awv.  .'      impulse  that  carries  up  the  price  of  commodities. 

•  ^  **{r^     Both  are  effects ;  neither  is  the  cause  of  the  other. 

^'Wr  '*'**^.      But  if  the  currency  has  remained  sound  and  stable, 

.      .,..*.iKt<^/  a  high  price  of  any  of  the  commodities  consumed 

.{*^Mi#^^by  the  laborers,  has  no  tendency,  that  I  can  perceive, 

to   raise   the   rate    of   money  wages.      The   higher 

Zcet-  ^Y  ^^7^    price  of  those  commodities  may  have   arisen  from 

rlicu^2  ^-•^'^'     deficient  harvests,  or  from  a  higher  cost  of  labor  in 

v<^.'  those   departments,  from  inequality  of  taxation,  or 

;u.u,,,  other  similar  causes;  but  no  one  of  these  enables 

^,  jU         capital  to  share  the  gross  proceeds  of  production  on 

better  terms  with  labor.     Neither  money,  nor  real, 

nor  relative  wages  can  rise,  as   I  see,  merely  from 

high  prices  of  the  commodities  which  the  laborers 

consume.     It  seems  to  me,  accordingly,  that  much 

clear  light  is  thrown  from  this  analysis  of  the  cost  of 

labor  upon  the  whole  vexed  question  of  wages. 

The  third  ulterior  purpose  of  presenting  this  an- 
alysis is  briefly  to  unfold  the  principles  according  to 


ON  COST  OF  PRODUCTION.  219 

which   the  division  between  wages  and  profits  is  j    •    ^^^^ 
practically  made.     It  was  Mr.  DeQuincy  who  first  ^^^^^/^i     ' 
called  profits  the  leavings  of  wages ;  but  this  is  only^^A^o^ 
true  when  by  wages  is  meant  the  cost  of  labor,     The^r^j^  j%S. 
gross  products  created  by  the  combined   action  of^'^w^'^ 
capjtal  and  labor  belong  in  common  to  the  capital-  . 

ists  and  laborers,  and  are  to  be  divided  between  ^^^^^^PtZ 
in  some  way,  and  the  analysis  in  question  enables^^^^^^^^^  ^ 
us  to  perceive  just  how  they  are  divided.     Cost  of  e*^it»/:CC» 
jabor  being  deducted,  the  rest  goes  to  capital  as  a 
^^i^^^^__P^"^^^>  ^^^  ^^^  proportion  of  this  part  to 
the  whole  capital   marks  the  per  cent,  for  the  given 
time.       If  this  part  falling  to    capital  is  large  for 
every  hundred  invested,  the  rate  per  cent,  is  high ;  if 
small,  low.     The  efficiency  of  labor  and  the  state  of  ^  ^ 
the  currency  being  as  before,  a  rise  of  money  wages  ^^^^'^ 
will  lessen  profits,  but  no  rise  of  money  wages  ac-'^^^^*^  *'(  '2*'^ 
companying  increased  efficiency  of  labor,  or  result-' ^^^^^  ^ 
ing  from  inflated  currency,  has  a  tendency  to  lessen  r^^^H^y''*^ 
profits  at  all.     The  capitalist  as  such  is  interested  in  \kM*^  "^^^ 
having  cost  of  labor  low,  but  not  in  low   ^^^^^Y Aj;i,^  ^  ^ 
wages  necessarily,  because  a  low  cost  of  labor  is^f,4^8uU<^ 
consistent  with   high  money  wages,  and  with  high  A.<,^vw^  e>^ 
real  wages  too.     Very  efficient  labor  may  be  very  Mm»s-  t*-^ 
highly  paid,  and  yet  leave  to  capital  a  high  rate  peri?^..«^  ii^L^ 
cent.     We  here  see  again  from  another  stand-point,  ^'**--^*^  ^ 
and  from  a  deeper  view,  a  truth  we  have  seen  before,  "^         *^  " 
that  there  is  no  real  antagonism  but  a  real  harmony^  ^uvtJM.^ 
of  interests  between  capitalists  and  laborers.     ^oi\xlx[Z>jj:^  © 
are  alike  interested  in  the  combined   efficiency  of  cjOCb  »*a'w»^ 
capital  and  labor,  that  is  to  say,  in  the  amount  of     _*     . 
gross  products  created ;  and,  in  respect  to  the  divis-^  , 

ion  of  this  gross  amount,  there  is  no  more  collision  ^^  J''^^'^  r 


220  ELEMENTS  OF  POLITICAL  ECONOMY. 

of  interest  than  in  making  the  dividends  of  the  year 
among  the  partners  of  a  commercial  house.  The 
cost  of  labor  must  first  be  defrayed;  and  this  de- 
pends on  its  efficiency,  its  nominal  rate  of  remunera- 
tion, and  the  present  purchasing-power  of  money. 
What  is  left  is  gross  profits,  and  the  relation  that 
this  bears  to  the  whole  capital  invested  decides  the 
rate  per  cent.     So  far  of  cost  of  labor. 

2.  The  second  element  in  the  cost  of  production 

<>/  4  Ct^t*^  jg  ij^g  f,Qgf^  qJ-  capital ;  and  this  also  must  be  analyzed 

into  three  variables,  no  one  of  which  can  be  safely 

neglected  in  a  computation  which  has  for  its  object  to 

1        decide  a  prospective  cost  of  production  :  —  1st,    The 

'^^'^  rate  per  cent. ;  2d,  The  time  for  which  the  capital  is 

advanced ;  3d,  The  form  of  the  capital  as  liable  to 
slow  or  rapid  deterioration.  We  must  look  at  the 
influence  of  each  of  these  elements  on  cost  of  pro- 
duction. 

(lJU)^Qt^.  (!•)  I^^t  ^s  suppose  that  the  rate  per  cent,  at  Am- 
sterdam is  3,  and  the  rate  at  New  York  is  7,  that 
the  cost  of  labor  is  equal  in  the  two  cities,  that  the 
time  of  advance  is  one  year,  and  that  there  is  no 
liability  of  the  capital  to  wear  out ;  a  commodity 
made  at  Amsterdam  with  an  outlay  of  $100  can  be 
sold  for  $103,  while  the  same  commodity  made  at 
New  York  with  the  same  outlay  cannot  be  sold  for 
less  than  $107.  The  current  rate  per  cent,  is  one 
element  of  the  cost  of  capital,  and  through  this,  of 
the  cost  of  production. 
,  /.<, .  (2.)  The  effect  of  the  time  of  advance  on  cost  of 
capital  is  more  striking.  Let  the  same  supposition 
be  continued,  except  that  the  time  of  advance  in 
New  York  be  extended  to  four  years.      The  com. 


ON  COST  OF  PRODUCTION.  221 

modity  will  sell  in  Amsterdam,  as  before,  at  $103, 
but  in  Nev/  York  for  not  less  than  $131.  This 
principle  is  well  illustrated  also  in  the  case  of  wine, 
which  to  reach  its  perfection  requires  to  be  kept  a 
number  of  years.  Even  under  the  same  rate  per 
cent,  which  we  will  suppose  6,  a  commodity  made 
in  six  months  with  an  outlay  of  $100  may  sell  for 
$103;  while  wine  grown  in  the  same  six  months 
at  the  same  outlay,  kept  five  years,  cannot  be  sold 
without  loss  for  less  than  $133.  If  the  period  of 
advance  be  long,  and  the  rate  per  cent,  be  high,  the 
cost  of  capital  from  the  two  causes  enhances  enor- 
mously the  cost  of  the  product ;  so  that,  it  is  only 
countries  like  England  and  Holland,  in  which  the 
rate  per  cent,  is  very  low,  which  can  successfully 
engage  in  enterprises  requiring  a  large  capital  to  be 
invested  for  long  periods  before  returns  are  realized. 
This  accounts  for  the  fact  that  mining  operations  in 
Mexico  and  South  America  have  been  largely  carried 
on  by  foreign  rather  than  American  capital.  One 
million  of  Dutch  capital  at  three  per  cent.,  expecting 
to  realize  returns  only  after  twenty  years,  will  be 
remunerated  by  a  product  selling  for  $1,806,111 ;  but 
under  like  circumstances,  American  capital  at  seven 
per  cent,  must  have  a  return  of  $3,869,685,  or  lose. 

(3.)  Most  forms  of  capital,  especially  that  invested'^'^':^^^^^ 
in  buildings,  machinery,  and  the  like,  more  or  less  ^■*'^^^*^^ 
rapidly  wear  out,  and  a  sinking-fund  must  be  re- 
served from  gross  profits  in  order  to  replace  the  prin-€vLftf.^*J 
cipal.  This  is  the  third  element  in  cost  of  capitaV'^v^i^M* . 
and  through  this  cost,  influences  the  cost  of  product  '^ 
tion,  and  through  cost  of  production,  affects,  in  the^^^*^^  "^.^ 
manner  already  pointed  out,  the  value  of  the  prod-  '^*^t    * 


222  ELEMENTS  OF  POLITICAL  ECONOMY. 

uct  Suppose  there  are  two  commodities  A  and  B 
produced  in  two  establishments,  in  each  of  which  is 
invested  a  capital  of  $11,000,  in  one  of  which  is  a 
machine  costing  $1000,  which  is  wholly  worn  out  by 
one  year's  use,  and  in  the  other  a  machine  costing 
the  same  sum,  which  will  last  however  for  ten  years. 
Let  the  rate  per  cent,  be  ten,  and  the  time  consumed 
in  completing  the  products  be  one  year.  There  is  a 
difference  in  the  cost  of  capital  in  the  two  establish- 
ments, and  this  difference  indirectly  but  immediately 
appears  in  the  value  of  the  respective  products.  To 
A  must  be  charged  not  only  $1100,  the  interest  on 
the  capital  at  the  current  rate,  but  also  another 
$1000,  wherewith  to  replace  the  machine  already 
worn  out  by  the  year's  production.  A  cannot  be 
sold  without  loss  for  less  than  $2100.  B  however 
will  cost  less.  To  it  must  be  charged,  as  before, 
$1100,  current  rate  of  profit  on  the  capital  invested, 
and  only  $100  to  replace  after  ten  years'  use  the 
machine.  B  therefore  can  permanently  sell  without 
loss  for  $1200. 

Now,  then,  if  my  readers  are  willing  to  follow  me 
a  little  further  along  this  dry  and  dusty  road,  we 
shall  be  able  to  draw  some  important  conclusions  in 
respect  to  value  as  depending  on  wages  and  profits. 
While  we  have  been  seeming  to  attend  to  only  one 
of  the  four  elements  out  of  which  value  springs, 
namely,  one  effort,  of  which  cost  of  production  is 
always  an  exact  measure  whenever  the  effort  is  em- 
bodied in  a  commodity  made  jointly  by  paid  labor 
and  capital,  we  have  really  been  attending  to  the 
other  effort  also  whenever  that  effort  is  similarly 
embodied;   and   since  gold  and  silver  money   is  a 


ON  COST  OF  PRODUCTION.  223 

commodity,  like  any  other,  we  have  incidentally,  in 
this  analysis  of  cost  of  production,  taken  some  steps 
towards  determining   the  value  of  money.      Now, 
cost  of  production  is  made  up  of  cost  of  labor  and  /  . 
cost  of  capital,  and  the  first  general  conclusion  is,A^^f^  ^ 
that  if  the  cost  of  labor  for  any  reason  be  enhanced, "^^^^^ 
nothing  can    prevent  this  higher  cost  from   taking '^'^ 
effect  and   exhibiting  itself  in  lower  profits.      The 
Berond  conclusion  is,  that  money-wages,  or  any  rise 


Of  fall  of  them,  provided  they  are  uniform,  or  uni-^^®^]^*p 
formly  rise  and  fall,  in  those  departments  of  produc-****^         o 
tion  w^hose  commodities  exchange  with  each  other,^  m.-w^-y  - 
have  no  effect  at  all  upon  value,  since  they  are  com- 
mon factors  in  two  costs  of  production,  and  like  all  -^ 
common  factors,  cancel  each  other;  but  any  inequal-  ^^'^-^/^^""^ 
ity  of  money-wages  in  these  departments  that  affects '^'****^"*^ 
the  cost  of  labor,  will  have  an  indirect  but  controlling 
influence  on  the   value   of  the  commodities.      The 
same  is  true  of  profits.     So  far  as  the  rate  per  cent./o  ^ 
is  common  to  all  branches  of  production,  the  capital^^^^^  €>»,v^  / 
advanced  for  the  same  period,  with  a  similar  risk  of  itMw^..^ci,  ^^ 
deterioration  or  loss,  and  so  far  as  any  one  or  all  of  ^c«ma*.  .  WJ5 
these  advance  or  recede  uniformly  and  together,  they 
do  not  affect  the  value  of  any  of  the  commodities 
produced.    But  inequality  in  any  one  of  these  points, ^[^^^^^-tM^^oU^ 
varies  the  relative  cost  of  capital,  and  consequently, tncJCc  )j^e^ 
the  cost  of  production,  and  consequently  the  value 
of  the   product.     It  is  at  this  point  precisely  that 
there  is  opened  up  to  us  a  clear  view  of  the  influence  jUxIc^.*.^^ 
of  machinery  upon  values.     So  far  as  machinery  ^'^<'^'~^'-^ 
brings   into  play,  as  it   always   does,  a   gratuitous  ^'^'^'^•^ 
natural  force,  it  is  outside  the   pale  of  value;   but 
since  the  machinery  itself  is  one  important  form  of 


224  ELEMENTS   OF  POLITICAL  ECONOMY. 

capital  on  which  rate  per  cent,  must  be  paid,  the 
more  machinery  employed  relatively  to  labor  in  the 
production  of  commodities,  the  more  do  profits  enter 
into  the  cost  of  production,  and  the  more  powerfully 
do  changes  in  the  rate  per  cent,  in  the  time  of  ad- 
vance, and  in  the  risk  of  deterioration,  tell  upon  the 
value  of  commodities  so  produced,  as  estimated  in 
other  commodities. 

In  other  words,  the  more,  or  the  more  durable  the 
machinery  in  the  production  of  a  commodity,  the 
larger  the  element  of  profit  in  the  price  now  abso- 
lutely reduced ;  on  a  rise  of  the  rate  per  cent,  there- 
fore, the  value  of  the  commodity  made  by  more  or 
more  durable  machinery  will  relatively  rise. 
f;  Having  traced   completely  the  influence  of  ma- 

A^tXiA.^  fy^   chinery  on  profits,  a  few  things  must  now  be  said  on 
^>-c^jL^l  its  influence  upon  Avages.     Formerly  the  prejudice 

was  almost  universal,  and  is  still  wide-spread  in 
many  parts  of  the  world,  that  the  general  introduc- 
V>^.^wv^-^  tion  of  labor-saving  appliances  does  an  injury  to  the 
^^^^^'^^^^  ^^  laborers  by  taking  away  their  work.  So  strongly 
*^''***^  ^  has  this  been  felt  by  the  laborers,  that  in  England, 
and  especially  in  Ireland,  mobs  and  riots  have  usu- 
^^  V  ally  accompanied  the  introduction  of  machinery  into 

those  departments  of  production  in  which  hand-work 
had  previously  prevailed.  If  work  were  what  labor- 
ers really  wanted,  the  prejudice  in  question  would 
cease  to  be  such,  and  become  a  sound  opinion;  since 
**^^**  the  only  object  and  result  of  introducing  machinery 
IS  to  lessen  work,  at  least  with  reference  to  a  given 
product ;  and  the  laborers,  to  be  consistent,  should 
not  stop  with  opposing  new  inventions,  but  should 
destroy  all  forms  of  existing  capital,  that  there  might 


ON  COST  OF  PRODUCTION.  225 

be  work  a  plenty  for  simple  human  hands.     What 
the  laborers  really  want,  however,  is  not  work,  but 
wages,  or  rather,  those  commodities  for  which  their^  ^tjju 
wages  are  expended  ;  and  the  question  is,  whether^ cm>wva  I 
labor-saving  processes  tend  to  lessen,  not  work,  hxxiiiAAjuQ  jj 
work's  remuneration.     There  is  no  form  of  proofft|^^^^^  ^ 
that  I  know  of,  which  amounts  to  a  moral  demonstra-ft^j-^siu^.  \ 
tion  that  the  substitution  of  machinery  for  labor  can- 
not lessen  the  laborer's  wages ;  the  opposite  has  per 
haps  sometimes  happened,  and  is  possibly  liable  to 
happen,  especially  in  agriculture,  in  certain  transitory 
states  of  society.     But  the  general  appeal  can  be 
made  to  experience  with  all  safety.     As  a  matter  of 
fact  and  experience,  it  has  not  been  found  true  that 
the  introduction  of  improved  processes,  the  substitu- 
tioji  of  Nature's  forces  for  human  muscle,  has  deteri-  ^ -vW-s^ 
orated  the  condition  of  laborers  in  those  departments  liMn^xiu. 
into  which  the  inventions  have  been  brought,  or  the^^^''^^^^^ 
condition  of  laborers  generally.     Exactly  the  reverse '^^''^     ' 
has  usually  taken  place ;  and  wages  are  apt  to  be 
highest  rather  than   lowest  in  connection  with  the 
most  and  the  most  durable  machinery,  and  higher 
rather  than  lower,  after  the  introduction  of  more  and 
better  machinery.     Operatives  in  manufactories,  for 
instance,  are,  as  a  rule,  better  paid  than  farm  labor- 
ers; and  better  paid  in  the  first  class  than  in  the 
inferior  establishments.     Teamsters,  in  this  country 
at  least,  and  I  suspect  in  all  countries,  are  as  well  to 
do  as  before  the  construction  of  railroads.      So  of 
spinners,  weavers,  and  artisans  of  every  name.     In 
explanation  of  these  general  facts,  it  may  be  noticed, H"'*'^  ^  '^ 
(1)  that  labor  is  always  required  in  the  construction^'^'^'*^*'^^  | 
and  repairs  of  all  kinds  of  labor-saving  appliances,  ^c^\r<>^-^ 

15 


226  ELEMENTS  OF  POLITICAL  ECONOMY. 

and  so  far  forth,  a  new  market  for  labor  is  opened 
up  in  place  of  any  loss  of  market  possibly  resulting 
from  their  introduction ;  (2)  these  forms  of  capital 
always  tend  to  cheapen  the  products  which  they 
help  to  create,  and  such  products  because  they  are 
cheap  find  a  wider  circle  of  consumers,  and  more 
must  be  produced  to  supply  a  now  broader  market, 
and  so  far  forth  the  demand  for  labor  may  be  strong- 
er than  it  was  before ;  (3)  These  improvements 
cheapen  also  the  commodities  consumed  by  the 
laborers  themselves,  and  therefore  a  given  rate  of 
wages  now  secures  for  them  a  higher  grade  of  com- 
forts. Combining  these  observations  with  the  law 
of  distribution  already  pointed  out,  and  the  conclu- 
.  ^  sion  is  fairly  established  that  the  effect  of  machinery 
^^  ^  ^  is,  and  will  be,  rather  favorable  than  otherwise  to 
the  laboring  classes. 

Now,  as  a  result  of  this  entire  discussion,  atten- 
tion must  be  called  to  a  generalization,  which  has 
been  more  or  less  fully  noticed   by  several  writers, 
and  with  the  presentation  of  which,  this  branch  of 
the  subject  will  be  concluded.     Since,  by  the  aid  of 
the  different  forms  of  capital,  and  such  a  division  of 
labor  as  that  every  part  of  it  is  made  most  efficient, 
the  cost  of  production   of  most  kinds  of  manufac- 
tured articles  tends  to  decline  as  compared  with  the 
,     cost  of  production  of  food  and   raw  materials,  in 
^j1!^  X"  ^^^^^  production  these  advantages  are  less  perfectly 
\a  (Y^Jy*'^^*^^^^^^^^  ^^^  *here   is   a   constant   tendency   towards 
'j^L^^*^      approximation  in  the  value,  and,  if  money  remain 
^&^  -        unchanged,  in  the  price,  of  raw  materials  and  of 
\^  finished  products  ;  and  in  the  degree  of  this  approx- 
imation will  be  found  a  gauge  of  the  success  with 


ON  COST  OF  PRODUCTION.  227 

which  gratuitous  natural  forces  and  improved  facili- 
ties of  art  have  been  made  available  in  production. 
This  single  statement,  clearly  perceived  in  its 
grounds,  grasps  and  holds  the  principal  results  of 
our  discussions  thus  far.  Examples  of  the  principle iytAwfv^ 
offer  themselves  on  every  hand.  Let  us  look  at 
cotton  cloth ;  an  example  somewhat  marred  at  the 
present  moment  by  the  consequences  of  the  late  civil 
war,  and  disguised  by  a  depreciated  currency ;  but 
which,  allowance  being  made  for  these,  is  an  excel- 
lent illustration.  At  the  opening  of  this  century, 
the  average  price  of  raw  cotton  was  just  about 
twenty  cents  a  pound  ;  at  the  middle  of  the  century, 
and  onwards,  the  average  price  was  just  about  ten 
cents  a  pound.  At  the  first  period,  although  accu- 
rate tables  are  wanting,  the  average  price  of  cotton 
cloth  could  not  have  been  less  than  sixty  cents  a 
yard ;  at  the  second  period,  it  could  hardly  have  been 
more  than  ten  cents  a  yard.  The  absolute  price  of 
raw  cotton  diminished  in  the  interval  in  the  ratio  of 
2  to  1 ;  while  the  absolute  price  of  cotton  cloth 
diminished  in  the  interval  in  the  ratio  of  6  to  1. 
Relatively  to  a  yard  of  finished  cloth,  the  raw  mate- 
rial greatly  rose  in  value,  since  at  the  first  it  took 
three  pounds  to  buy  a  yard,  and  at  the  last  but  one 
pound.  There  was  a  marked  approximation  all  the 
while  of  the  price  of  the  finished  product  towards 
the  price  of  the  raw  material ;  in  other  words,  less 
and  less  difference  of  price  was  due  to  the  cost  of 
manufacture,  which  lessening  cost  marks  the  ever- 
increasing  efficiency  in  the  production  of  commodi- 
ties of  the  gratuitous  powers  of  Nature  applied 
through  machinery.     According  to  Dr.  Ure,  the  in- 


228  ELEMENTS  OF  POLITICAL  ECONOMY. 

troduction  of  machinery  into  the  manufacture  of 
lace,  lessened  the  cost  of  that  product  in  the  ratio  of 
50  to  1 ;  and  thereby,  and  to  that  degree,  approxi- 
mated the  price  of  a  pound  of  such  lace  towards  the 
price  of  a  pound  of  the  cotton  from  which  it  was 
made.  Food,  raw  materials,  and  labor,  and  the  last 
more  than  the  other  two,  tend  steadily  to  advance  in 
their  power  to  command,  that  is,  to  buy,  most  kinds 
of  finished  products ;  and  therefore,  the  millions  who 
labor  with  their  hands,  and  the  other  millions  who 
own  the  soil  and  till  it,  have  already  advanced,  and 
will  still  more  advance,  in  a  scale  of  comforts,  with 
the  advancing  centuries. 

In  the  opening  paragraph  of  this  treatise  it  was 
stated,  that  to  unfold  the  Science  of  Political  Econ- 
omy in  a  proper  order  and  completeness  would 
require  three  things :  namely,  j&rst,  an  analysis  of  the 
principles  of  human  nature  out  of  which  exchanges 
spring ;  second,  an  examination  of  the  relations  of 
men  to  the  physical  earth  and  to  each  other,  by  which 
God's  design  is  manifest  that  exchanges  should  be 
practiced;  and  third,  an  inquiry  into  the  laws  and 
usages  devised  by  men  to  facilitate  or  impede  ex- 
changes. According  to  this  plan,  the  first  and  sec- 
ond general  branches  of  the  subject  have  now  been 
treated,  and  we  pass  to  the  third,  beginning  with 
Money. 


ON  MONEY.  229 


CHAPTER   X. 

ON  MONEY. 

There  is  no  use  in  saying  that  money  is  such  a 
mysterious  and  complicated  agent  that  nobody  can 
understand  it.  That  is  the  language  of  indolence. /^<^7i^^^^i^ 
Money  is  wholly  a  matter  of  man's  device ;  it  was 
invented,  just  as  any  other  instrument  is  invented, 
to  accomplish  a  certain  purpose;  and  it  would  be 
strange  if  men  cannot  comprehend  what  men  them- 
selves have  devised.  In  all  departments  of  God's 
works,  indeed,  we  constantly  meet  with  what  can- 
not be  fully  comprehended  nor  perfectly  fathomed, 
because  an  infinite  mind  has  been  there  at  work 
upon  an  infinite  plan.  But  there  is  no  such  profun- 
dity in  the  works  of  men ;  unfathomableness  is  not 
an  attribute  of  human  skill ;  and  since  money  is  an 
instrument  devised  by  men  to  aid  them  in  accom- 
plishing a  certain  purpose,  it  is  as  unreasonable  to 
pretend  that  it  is  incomprehensible,  as  it  would  be 
to  pretend  that  the  steam-engine  is  incomprehen- 
sible. I  hold  it  for  certain  that  whatever  men  have 
devised,  men  can  comprehend. 

The  general  purposes  which  money  was  designed 
to  answer,  and  which  it  is  found  admirably  to  fulfil,  v 
are  best  perceived  under  the  supposition  that  there  •' 
were  no  money.    Exchanges  began,  and  were  profit- 
able, long  before  money  came  into  existence.     Men 


230  ELEMENTS  OF  POLITICAL  ECONOMY. 

first  exchanged  services  directly  for  each  other,  with- 
out the  intervention  of  any  medium.  This  form  of 
trade  is  called  Barter.  Hiram,  king  of  Tyre,  fur- 
nished to  Solomon  a  certain  quantity  of  cedars  from 
Lebanon,  and  Solomon,  in  return,  furnished  the  Tyr- 
ians  a  certain  quantity  of  wheat  and  oil.  This  may 
serve  as  an  instance  of  barter,  although  money  had 
been  in  current  use  long  previously  to  that  transac- 
tion, as  is  seen  in  the  purchase  by  Abraham  of  the 
cave  and  field  of  Machpelah,  for  which  he  weighed 
out  four  hundred  shekels  of  silver,  current  money 
with  the  merchant.  It  is  obvious,  however,  that 
while  barter  is  a  great  deal  better  than  no  exchanges 
at  all,  there  are  inherent  difficulties  in  that  form  of 
exchange.  Under  pure  barter,  exchanges  are  pretty 
much  limited  to  those  parties  each  of  whom  is  in 
position  to  render  to  the  other  such  services,  and  in 
such  quantities,  as  the  other  stands  in  direct  and  im- 
mediate need  of;  it  is  not  enough,  under  these  con- 
ditions, that  a  man  should  have  a  service  to  sell,  but 
c^V  also  he  must  find  a  man  who  wants  that  specific 
service,  and  more  than  this,  a  man  who  not  only 
wants  that  specific  service,  but  also  has  a  service  to 
render  in  return,  such  as  the  first  man  wants.  If  A 
has  wheat  which  he  wishes  to  exchange  for  a  coat, 
he  must  find  a  party  who  wants  wheat,  and  who 
also  is  in  position  to  render  a  coat  in  exchange  for 
it,  and  moreover  who  wants  just  as  much  wheat  as 
will  pay  for  a  coat,  no  more  and  no  less ;  if  he  wants 
more,  he  may  have  nothing  to  render  in  exchange  for 
the  excess  which  A  is  willing  to  accept ;  if  less,  A 
may  have  nothing  which  the  other  wants,  besides 
wheat  with  which  to  help  pay  for  the  coat.    Even  in 


ON  MONET.  231 

the  simpler  states  of  society,  the  inconvenience,  loss  ^*-*^  <^  '^-^ 
of  time,  and  deterioration  of  commodities  involved  in^:^^^^"*^ 
direct  barter,  are  very  great,  and  in  more  advanced  ,>,,,^t.^,_^,^ 
states  of  civilization  would  be  intolerable,  if  it  were 
possible,  as  it  is  not,  for  society  to  become  advanced 
under  those  conditions.     Exchanges  are  so  limited 
in  time,  place,  and  variety,  association  is  so  ham- 
pered, and  the  development  of  all  peculiar  talents  so-^Vi^  jiijo^ 
impeded,  under  a  system  of  simple  barter,  that  one^^v^*^^^  - 
of  the  initial  steps  in  the  progress  of  all  societies 
has    been  to    hit    upon    some    expedient  to   lessen 
these  intrinsic  difficulties;    and  so  to  facilitate  ex-'^ 
changes.      This  expedient    has   been  the  invention ^^.^^^ 
of  money,  that  is  to  say,  the  selection  of  some  prod- 
uct, which,  by  general  consent,  instead  of  the  par- 
ticular purchasing-power  of  common  commodities, 
should  have  a  universal  purchasing-power ;  so  that, 
whenever   anybody  has   anything   to   exchange,  he 
may  first  exchange  it  for  this  product,  whatever  it 
be,  and  then  with  this  product  purchase  at  any  time 
and  place,  whatever  he   may  want.     Money  makes 
no  alteration  in  any  law  of  value,  but  merely  sub- 
stitutes for   convenience'  sake    in  every  transaction 
in  which  it  plays  a  part,  a  universal  for  a  specific    ♦ 
purchasing-power;  a  book,  for  example,  has  a  specific 
purchasing-power ;  there  is  somebody  who  wants  it, 
and  is  willing  to  give  a  sum  of  money  for  it;  and 
the  owner  by  the  sale  of  it  parts  with    a  product 
which  has  only  the  power  to  purchase  something 
from  a  few  persons,  and  receives  a  product  which 
has  the  power  to  purchase  something  from  all  per- 
sons ;  it  is  not  true  to  say  that  the  book  is  worth 
more  than  the  money,  or  the  money  is  worth  more 


-A'.xl. 


"^'^-'7 


232  ELEMENTS  OF  POLITICAL  ECONOMY. 

than  the  book,  because  they  are  just  worth  each 
other,  as  is  demonstrated  by  the  sale  ;  but  it  is  true 
to  say  that  the  seller  of  the  book  has  substituted  in 
the  place  of  a  limited  purchasing-power,  of  which 
he  was  proprietor,  a  general  purchasing-power,  of 
which  he  has  now  become  proprietor ;  and  that  the 
command  of  the  money,  which  has  no  more  value 
than  the  book  had,  does  carry  along  with  it  a  supe- 
rior command  over  purchasable  articles  generally 
In  one  word,  value  in  the  form  of  money  is  in  a 
'more  available  shape  for  general  purchasing,  than 
value  in  any  other  form.  This  is  the  exact  expression 
for  what  truth  there  is  in  the  common  vague  remark, 

*-^  ^.'  that  money  is  different  from  all  other  commodities ; 

*  ' '      ^  in  point  of  value,  it  is  different  from  other  commodi- 

ties in  just  one  respect,  namely,  while  they  have  the 
power  of  buying  some  sorts  of  things  from  some  per- 
sons, it  has  the  power,  derived  from  the  usages  of 
society,  to  buy  all  sorts  of  things  from  all  persons. 

It  might  seem,  at  first  sight,  as  if  the  introduction 

of  money,  instead  of  simplifying  the  operations  of 

'^vt^^        exchange,   would    only   complicate   them,   since   it 

T^^b  "J^l*^-^ -necessitates  two  exchanges,  where   otherwise  there 

^'  •  *     would  be  but  one ;  but  reflection,  as  well  as  experi- 

ence, is  able  to  convince  us  that  there  is  no  machine 
which  economizes  labor  like  money  ;  no  instrument 
which  plays  so  important  a  part  in  production ;  no 
invention,  unless  it  be  the  invention  of  letters,  which 
has  contributed  more  to  the  civilization  of  mankind. 
While  men  still  exchanged  in  kind,  and  knew  no 
other  mode,  the  purch*asing-power  of  a  service  was 
very  much  confined  in  place,  and  would  not  be 
J  ;     parted  with    except  in  view  of  the   return    service 


ON  MONEY.  233 

actually  tliere  present,  the   ultimate  part'es   to  an 
exchange   must   for   the   most   part   come   together 
locally,   in    order   to    effect   an  exchange ;   under  a 
money  system,  this  is  no  longer  necessary,  for  it  is 
sufficient  to  constitute  a  market  for  any  commodity 
that  it  is  wanted  anywhere  on  the  globe,  the  middle 
man,  paying  the  seller  for  it  in  money,  transports  it 
thither,  and  receives  back  his  money  with  a  profit 
from  the   ultimate  consumer.     Thus   money  brings^^w-wu-  ^h^^ 
conveniently  buyers   and    sellers   together   commer-^-^^^  U-^..^ 
cially,   no   matter    how   far   separated   locally.     So, '^^^^^''*'^'*^ 
also,   money   generalizes    any    purchasing-power   in 
point  of  time.     The  fruit-dealer,  for  example,  must 
dispose  of  his  product  quickly,  or  it  perishes  on  his/^^Ui-hH^Zit. 
hands,  but   by  transmuting  his  perishable  product ^^n..,   , 
into    money,  he  may  keep  its   power  of  purchase  ; 
locked  in  this  form  as  long  as  he  lists;  the  money,^^  ^^"**^V 
indeed,  is  only  good  to  purchase  with,  but  it  puts  an:L/i,^  fii^ 
interval  at  the  pleasure  of  the  holder  between  sell- ^"^j^^^^^^^  • 
ing  and  buying,  and  with  this  generalized  power  in  ''-"•^*''^-^- 
his  pocket  he   may  buy  when  he  will,  and  what  he 
will,  and  where  he  will.     Money,  too,  makes    any 
purchasing-power   portable,  divisible,  and   loanable. 
A  man  may  carry  the  value  of  his  farm  in  his  purse, 
and  may  divide  it  up  for  a  thousand  different  pur- 
chases, and  especially  is  able  to  loan  it  in  this  form, 
to  receive  it  back  again  with  interest  at  a  future  day. 
Value  in  any  other  form  than  money  is  not  gener- 
ally suitable   for   loaning,  because    there    are   com- 
paratively few  who  are  willing  to  borrow  a  merely 
specific  purchasing-power,  and  guarantee  its  return 
in  that  form  with  the  due  increase ;  but  money,  as  a 
generalized  agent,  will  command  all  services  at  all 


234  ELEMENTS  OF  POLITICAL  ECONOMY. 

times,  will  serve  at  any  man's  bidding,  and  work  in 
all  sorts  of  harness,  and  therefore  it  is  rarely  difficult 
for  men  to  loan  any  sums  of  money  they  have  not 
immediate  use  for,  and  to  make  every  moment  of 
their  own  abstinence  pay  tribute  in  interest,  and  the 
advantages  to  both  lenders  and  borrowers  secured 
through  this  form  of  value — money — are  incalcu- 
V^(l_^  lable.     Thus  we   see  the  reason  why  governments, 
v^IiluxftsJL    corporations,    and   individuals,    when   they  borrow, 
^^   .       borrow  money.     This  general  view  of  the  uses  and 
jCTrjJ^<^  advantages  of  money  will  show  it  to  be  one  of  the 
most  potent  of  the  social  agents,  and  will  serve  also 
to  introduce  our  first  specific  proposition. 
1.  Money  is  a  medium  of  exchange. 
The  word  medium  in  this  proposition,  is  to  be 
taken  in  its  etymological  and  strict  sense,  as  some- 
thing that  comes  between  two  extremes,  and  serves 
also  to  relate  them  to  each  other.      Money  is  ex- 
changed for  other  things,  as  a  means,  and  not  as  an 
end  ;  it  is  a  very  great  help  in  exchanging  all  other 
things,  but  is  never  exchanged  for  itself  in  an  ulti- 
mate transaction.     Small  boys,  indeed,  swap  cents, 
but  men,  the  miser  excepted,  who  is  under  a  deplor- 
able fallacy  of  the  senses,  use  and  estimate  money 
first   as  the   medium  which  facilitates  the  real  ex- 
changes of  society.      What  is  really  exchanged   is 
the  wheat,  the  cloth,  the  lumber,  the  furniture,  the 
service  of  every  kind,  and  money  is  but  the  instru- 
ment making  those   exchanges   easy,  which    might 
^U.M  L        perhaps  go  on  without  it,  though  with  difficulty  and 
;?    ?:>,'.(       loss      It  is  somewhat  like  a  railroad  ticket.     Trans- 
portation to  a  given  place  is  what  is  really  bought 
when  one  buys  a  railroad  ticket.     The  evidence  of 


ON  MONEY.  235 

the  purchase  is  the  bit  of  paper.     It  comes  in  as  a 
medium  between  the  traveller  and  the  railroad  com- 
pany, and  while  it  facilitates  the  real  exchange,  it 
also  partly  disguises  it.     The  resemblance  holds  in 
the   main   feature,  but  in  two  respects  the  likeness  A^^^'^^^^*'''*^^ 
fails;  money  is  not  a  specific  ticket  for  one  purpose, ''^ ^'^  *^^ 
but  is  a  general  ticket  for  all  purposes  of  purchase  ;^'^^^''^"^  ' 
and  secondly,  metallic  money  stands  as  a  value  in  its 
own  right,  at  the  same  time  it  is  serving  as  a  me- 
dium, while  the  ticket  does  not.      Still,  we  are  all 
desirous  to  get  money,  not  for  the  sake  of  the  money, ^^^^.^^^^^^       , 
but  for  the  sake  of  those  things  which  the  money  will  i^:xo  c»-w^ 
buy.    We  part  with  it  freely  and  constantly  for  those 
things  which  we  care  more  about.     What  we  really 
care  for  is  what  the  money  will  buy,  is  the  command 
over  all  services  and  commodities  which  the  posses- 
sion of  money  insures.     If  we  could  give  our  own 
service  or  commodity,  whatever  it  is,  and  receive 
directly  in  return  the   service  or  commodity  which  ^  ^  tv^r^-' 
we  want,  whatever  it  is,  there  would  be  no  need  oi  ^i,,%^^^ 
money.     This  is  generally  inconvenient,  and  ^ome^ 'h^U,^u^  ^, 
times  impossible.     Therefore  we  introduce  a  middle  7v^*--*~*y  • 
term   between   the   two  extreme  terms.     Money  mob-ff^<^<'^^ 
a  good  mean   which   helps  exchange   the   two   ex-'^;^'^^^^*^ ^^ 
tremes.       -  •  'i:-/^T^*^> 

But  we  must  be  careful  not  to  .suppose  that  all  'i^*-3^  a^ 
the  exchanges  of  a  country,  or  those  between  differ- 
ent countries,  are  mediated  by  money  directly.  Some 
exchanges  still  proceed  in  the  way  of  barter ;  many 
more  proceed  by  means  of  instruments  of  credit, 
particularly  bills  of  exchange,  all  of  which  will  be 
fully  explained  in  the  chapter  following  the  next. 
Money,  indeed,  is  indispensable  as  a  medium  direct, 


236 


ELEMENTS  OF  POLITICAL  ECONOMY. 


H^A^^aO^i 


and  always  will  be;  it  is  also  indispensable  as  alone 
capable  of  furnishing  those  denominations  of  value, 
like  the  dollar,  which  are  always  used  in  bargaining, 
•  and  in  those  multitudinous  cases  of  credit,  in  which 
settlement  is  made  not  by  money  but  by  offsetting 
^  one  piece  of  indebtedness  against  another ;  but  it 
must  always  be  borne  in  mind  that  increase  in  the 
number  of  exchanges  does  not  necessarily  require 
an  increase  in  the  volume  of  money.  Credit,  as  we 
shall  see,  is  more  and  more  taking  the  place  of 
money  direct.  Also,  the  power  of  money  as  a  me- 
dium is  multiplied  by  what  has  been  called  rapidity 
of  circulation^  by  which  is  meant,  that  a  brisker  use 
of  the  volume  already  in  circulation  will  reach  the 
same  end  as  an  increase  of  its  volume.  As  in  me- 
chanics, so  in  money,  the  whole  power  is  the  prod- 
.<  r  —--  •  ^Q^  Qf  jnass  and  velocity.  Money  is  like  any  other 
M»  y-'va^f^.  ^^qJ.  |.j^g  more  constant  its  use  the  more  profitable 
its  agency.  The  quick  movement  of  a  small  mass 
is  better  than  the  torpid  movement  of  a  large  mass, 
both  in  what  it  saves  of  expense,  and  in  what  it 
presupposes  of  the  general  conditions  of  exchange. 
The  value  of  the  money  of  any  country  is  a  small 
fraction  of  the  value  of  that  which  it  helps  to  ex- 
change directly;  and  a  very  small  fraction  indeed 
of  the  value  of  that  which  it  helps  to  exchange  in- 
directly through  credit  by  means  of  its  denomina- 
tions. Therefore  we  see  that  the  hub  and  spokes, 
and  rim  of  the  wheel  of  exchange  consist  of  ser- 
vices and  commodities  of  every  description  ;  while, 
to  borrow  the  famous  comparison  of  Hume,  money 
is  but  the  grease  which  makes  the  wheel  turn  easier. 
It  is  a  vast  mistake  to  suppose  that  the  grease  is  the 
wheel  itself. 


ON  MONEY.  237 

Hume*s  comparison,  though  exact  as  far  as  it  goes, 
and  for  the  purposes  for  which  he  used  it,  is  never-  * 
theless  capable  of  misleading  the  mind.  It  is  true  /.v>-v-^.  .-v 
that  money  is  the  grease  which  facilitates  the  revo-f^^  o^^rrwyi 
lution  of  the  wheel  of  exchange,  but  it  is  also  true 
that  the  dimensions  of  the  wheel  itself  are  vastly 
greater  than  they  would  have  been  had  it  not  been 
for  money.  Money  indeed  helped  exchange  the  prod- 
ucts that  already  existed  at  its  first  invention,  but 
by  far  the  largest  part  of  products  since  have  come 
into  existence  largely  through  the  agency  of  money. 
We  get  quite  too  low  a  view  of  the  function  of 
this  potent  agent,  if  we  think  of  it  merely  as  an 
aid  in  circulating  products  that  would  have  existed 
whether  or  no ;  some  products  would  have  existed 
whether  or  no,  and  money  certainly  is  of  great  use  -^.^^^^  ^^:. 
and  convenience  in  helping  bring  these  to  the  ulti- 
mate consumers;  but  this  is  a  partial  and  wholly 
inadequate  view  of  the  true  function  of  money  as  a 
medium  of  exchange.  The  fact  that  such  a  medium 
is  in  universal  circulation,  and  that  the  holders  of 
it  are  ready  to  exchange  it  against  any  sort  of  ser- 
vices adapted  to  gratify  their  desires,  exercises  a 
kind  of  creative  power,  and  brings  a  thousand  prod- 
ucts to  the  market  which  would  otherwise  never 
have  come  into  existence.  Since  money  will  buy 
anything,  men  are  on  the  alert  to  bring  forward 
something  which  will  buy  money ;  and  since  money 
is  divisible  into  small  pieces,  an  incredible  number  and 
variety  of  small  services  are  brought  forward  to  be 
exchanged  against  these  pieces,  which  services  we 
have  no  reason  to  suppose  would  ever  be  brought 
forward  at  all,  were  it  not  for  the  strong  attractiou 


238  ELEMENTS  OF  POLITICAL  ECONOMY. 

of  the    money.     In   this    point   of   view,   the   true 
nature  of  money  is  best  perceived,  when  it  is  con- 
Bidered,  as  it  really  is,  as  a  very  important  portion 
of  the  capital  of  the  world.     Capital,  as  we  have 
already  learned,  is  any  product  reserved  to  be  em- 
*^  ^•f  -  ployed  in  further  production.     The  circulating  me- 
^'^^^  U^.  dium  of  any  country  is  the  most  active,  the  most 
i-  i*.^\  o-v  profitable,  and  the  most  essential  of  all  those  instru- 
^,  .^       ^  ments  reserved  in  aid  of  further  production.     The 
axe,  the  plough,  the  spindle,  the  loom,  the  wheel,  the 
engine,  are  all  instruments,  are  all  capital,  and  they 
each  aid  respectively  some  part  or  parts  of  the  pro- 
cesses of  production  ;  but  money  is  a  form  of  capital 
which  stimulates  and  facilitates  all  the  processes  of 
production  without  exception.    Just  as  we  have  seen 
u^U*^  j^>^  that  money  is  a  form  of  value  generalized,  so  is  it  also 
)^kj.^x^.        ^  generalized  form  of  capital,  that  is  to  say,  it  is  an 
instrument  capable  of  aiding  all  production  in  every 
department,  while  every  other  instrument  is  capable 
of    aiding  but  few   processes   in   one   department 
Without  money,  there  could  be  no  thorough  division 
'  V^    '^^  j^l^Qj.^  because  there  would  be  no  adequate  means 
'  '    ^'      of  eslimating  or  rewarding  each  one's  share  in  a  com- 
plicated process.     By  means  of  money,  all  services, 
small  or  great,  contributing  toward  a  common  prod- 
uct,  are   neatly  measured   and    paid    for    by  some 
one,  who  thereby  becomes  proprietor  of  the  whole 
product;  or,  if  the  contributors  choose,  they  may  wait 
till  the  product  itself  is  sold,  and  then  the  money 
received  is  divisible  without  loss  to  each  contributor, 
according  to  the  service  rendered.     Thus  the  influ- 
ence of  money,  as  capital,  pervades  the  whole  field 
of  exchange,  from  centre  to  circumference,  facilitat- 
ing  every  transfer,  and  stimulating  to  new  transfers. 


ON  MONEY.  239 

Money,  then,  is  a  medium  of  exchange ;  and  the 
question  arises  in  this  connection,  how  much  of  it  is 
wanted  ?     Clearly,  only  so  much  as  will  serve  the'/^*'^-f  ^^-^^^ 
purposes  which  such  a  medium  is  fitted  to  subserve ;  o^^*^^  '^ 
there  should  be  enough  fairly  to  mediate  between 
the    services  actually  ready  to  be   exchanged  then 
and  there,  and  also  enough  fairly  to  call  out  other  ^      J 
services,  proper  and  profitable  in  the  then  circum- ^^r^ '^ 
stances  of  society,    and  whose   only  obstacle    to    a  ^'**^^  ''^ 
profitable  exchange  then  and  there,  is  the  lack  of  a 
facilitating  medium.    All  increase  of  money  beyond. ^^^^^^^'*-<^ 
this  point,  which   the  very  nature  of  money   itself^ ^"^"^^^  ^ 
marks  out  as  the  boundary,  leads  to  a  diminution 
in  value  of  every  part  of  it,  to  a  consequent   dis- 
turbance of  all  existing  money  contracts,  to  a  uni- 
versal rise  of  prices  which  are  illusory  and  gainless, 
to  unsteadiness  and  derangement  in  all  legitimate 
business,  and  to  a  spirit  of  restless  enterprise  and 
speculation,  which  seeks  to  draw  off"  the  excess  of 
money  in  untried  and  reckless  experiments.     These 
consequences  from  this  cause  have  been  again  and 
again  witnessed  in  every  commercial  country,  and  in 
the    United   States  on  a  gigantic  scale  during  the 
twelve  years  past.     I  cannot  help  thinking  that  Mr.  ., 
Carey,  who  has  thrown  so  much  light  on  certain  ^  ^-^""^  '^ 
portions   of  the  field  of  Political   Economy,  is   de- 
cidedly in  the  wrong  in  the  view  he  maintains  that 
there  cannot  be  too   much   money  in  any  country. 
No  writer  has  brought  out  more  clearly  than  he  has, 
the  intimate  relations  of  money  with  all  industrial 
development ;  but  he  seems  at  times  to  forget  that 
money,    essential   and  potent  as   it  is,  is   essential 
and  potent  only  as  a  medium.     The  real  subjects  of 


240  ELEMENTS   OF  POLITICAL  ECONOMY. 

exchange  are  mutual  efforts,  mutual  services,  and 
money  is  the  instrument  merely  that  comes  in  be- 
tween the  real  services  exchanged  to  facilitate  the 
exchange ;  and  therefore  it  seems  to  me  to  be  per- 
fectly conclusive  on  the  point  to  remark,  that  the 
quantity  of  money  needed  in  any  country,  or  in  the 
whole  world,  is  limited  by  the  number  of  the  ser- 
vices ready  to  be  exchanged,  to  facilitate  the  ex- 
change of  which  is  the  good  purpose  and  end  of 
money.  The  physical  and  mental  powers  of  men, 
which  alone  give  birth  to  services,  when  considered, 
as  they  must  be  in  this  connection,  as  belonging  to 
a  given  number  of  men  at  a  given  time  and  place, 
are  strictly  limited;  and  although  the  presence  of 
money  then  and  there  is  both  a  stimulus  and  an  aid 
to  their  bringing  forward  services  of  all  sorts  to  the 
market,  there  are  obvious  limitations  both  in  their 
powers  and  in  their  circumstances;  and  the  quan- 
tity of  money  needed  among  them  is  just  that 
quantity  which  will  fairly  act  as  a  medium  in  ex- 
changing the  services  which  they  are  able  and 
willing  to  render  to  each  other.  All  increase  in 
the  quantity  of  money  beyond  that  point  would 
have,  and  could  have,  the  only  effect  of  increasing 
the  nominal  prices  of  services,  without  making  the 
services  themselves  any  greater  in  number  or  better 
in  quality.  It  is  with  money  exactly  as  it  is  with 
any  other  form  of  capital,  allowance  being  made  for 
the  fact  that  money  is  a  kind  of  generalized  capital. 
Hqw  many  ships  does  a  commercial  nation  need  to 
employ  ?  As  many  as  will  fairly  take  off  its  exports 
and  bring  in  its  imports.  Ships  are  wanted  for  one 
definite  purpose ;  and  when  enough  are  secured  to 


ON  MONEY.  241 

answer  that  purpose,  all  additions  to  the  number  will 
lessen  the  value,  that  is,  the  purchasing-power  of 
ships  generally.  So  of  all  instruments  whatever. 
Enough  is  as  good  as  a  feast.  Enough  is  better 
than  more.  In  regard  to  every  form  of  capital,  the 
point  of  sufficiency  is  determined  by  the  quantity  of 
work  to  be  done.  Now,  money  is  a  form  of  capital, 
an  instrument,  having  this  peculiarity  only,  that  it  is 
capable  of  aiding  to  a  certain  extent  all  branches  of 
production  ;  and  the  point  of  sufficiency  in  the  quan- 
tity of  money  for  a  country,  or  for  the  world,  is  de- 
termined by  the  amount  of  products  of  all  kinds, 
otherwise  ready  to  be  exchanged,  and  only  waiting 
the  facilitating  agency  of  an  exchange  medium. 

It  only   remains   under  this   proposition   to  add,  . 

what  will  be  more  clearly  perceived  when  we  come  '^O'^h-^^^''^^^ 
to  treat  of  foreign  trade,  that  no  enterprising  com- '^^^^^^^^^'^^  f^ 
mercial  nation,  so  long  as  the  natural  right  of  ex-"^^^      ^t».^'* 
change  is  left  unimpeded,  and  so  long  as  the  money^' 
of  the  nations  consists  of  gold  and  silver,  or  paper,  ^       c 
legitimately  promissory  of  these,  can  ever  lack,  for 
any  great  length   of  time,  a  sufficient  quantity  of    *«t»  4.^i^fe^ 
money  to  serve  as  its  medium  of  exchange.  Cwt^^t^-c^c^  , 

2.   Money  is  a  measure  of  value,  "f* 

I  hope  it  was  made  very  plain,  under  the  preced- 
ing proposition,  what  is  meant  when  it  is  said  that 
money   is   a   medium  of  exchange.     Closely   com- z^  d^ '/>''- ^^ 
mingled  with  its  function  as  a  medium,  money  ha8  0<^«U^-^-»^j?-« 
another  very  delicate  function,  as  a  measure  of  value.  %*Hf-C<y'^ 
How  important  this  second  function  is  may  be  seen 
by  supposing  for  a  moment  that  there  were  no  in-.j        r^^fA^ 
strument    in   existence    capable    of    performing  it.     ^    . 
Without  a  common  measure  of  values  of  different 

16 


242  ELEMENTS  OF  POLITICAL  ECONOMY. 

sorts,  it  would  be  inconvenient,  not  to  say  impos- 
sible, to  carry  on  traffic  at  all.  For  instance  :  A 
baker  has  only  loaves  of  bread,  and  wishes  to  buy  a 
hat,  a  horse,  a  house.  How  many  loaves  shall  he 
give  for  each  ?  Without  some  common  denomina- 
tion in  which  these  differing  values  can  be  expressed, 
and  by  means  of  which  they  can  be  brought  into 
numerical  relations  with  each  other,  it  would  be  an 
awkward  piece  of  business  to  effect  even  the  three 
exchanges;  and  every  time  he  wished  to  purchase 
another  article,  there  must  be  an  independent  cal- 
culation from  different  data,  to  decide  the  terms  of 
the  exchange.  Introduce  now  some  common  denomi- 
nations in  which  each  of  these  values  can  express 
itself,  and  the  difficulty  disappears  in  an  instant. 
"  My  loaves  are  worth  ten  cents  each,"  says  the  baker. 
"  My  hat  is  worth  ten  dollars,"  says  the  hatter.  The 
terms  of  exchange,  then,  are  100  for  1,  and  no  par- 
leying. So  of  the  rest ;  so  of  everything  that  is  ever 
bought  or  sold.  Dollars  and  cents  are  the  denomi- 
nations in  which  values  are  reckoned,  and  by  which 
they  can  be  compared  with  each  other  numerically, 
just  as  feet  and  inches  are  the  denominations  by 
which  different  lengths  are  compared,  and  pints  and 
quarts  the  denominations  by  which  capacity  is  meas- 
ured ;  and  the  builder  and  the  surveyor  would  not 
be  more  at  a  loss  in  their  work  without  the  units  of 
length,  or  the  vintner  without  the  units  of  capacity, 
than  everybody  would  be  at  a  loss  without  the  units 
of  value.  Dollars  and  cents  are,  as  it  were,  the 
language  in  which  values  express  themselves ;  and 
without  some  such  language,  the  busiest  marts  of 
exchange  would  soon  become  not  only  a  silent  but  a 
deserted  scene. 


ON  MONEY.  243 

The  difference  between  money  as  a  medium  and  I'/i^^^^^o-t-t^c^  i 
money  as  a  measure  is  one  that  should  be  clearlyov^KwA^  a^  t 
delineated  and  perfectly  apprehended,  because  there  o^ai,>«^*»^--  o 
is  no  such  thing  as  adequately  understanding  the/>u>-«^  <»-3  «» 
subject  of  money  unless  the  two  functions  be  kept  .%>a-«^vL+M,  1 
distinct  in  the  mind,  as  well  in  their  single  as  in  their 
commingled  action.  The  original  measure  of  value 
in  France,  England,  and  Scotland,  was  the  pound 
weight  of  silver.  No  coin  of  that  weight  was  ever 
struck;  but  a  pound  of  silver  was  cut  into  240  coins 
called  pence.  Twelve  of  these  pence  were  called  a 
solidus,  or  shilling.  Thus  as  applied  to  silver,  the 
symbols  lb.  and  <£  denoted  equivalent  weights,  the 
former  of  uncoined  metal,  the  latter  of  metal  coined. 
But  in  course  of  time,  more  than  240  pence  so  called, 
and  at  last  in  Elizabeth's  reign,  744  pence,  came  to 
be  coined  out  of  a  lb.  of  silver.  Yet  all  the  while, 
240  of  these  pence  were  called  a  <£.  £  and  lb.,  both 
a  contraction  of  the  Latin  libra,  were  no  longer 
equivalent.  The  lb.  of  weight  continued  stable  :  the 
<£  of  money  had  dwindled  to  less  than  one  third. 
Yet  the  name  pound  continued  to  attach  to  240 
pence,  although  the  pence  embodied  a  less  and  less 
quantity  of  silver.  As  the  medium  contained  a  less 
quantity  of  silver,  so  the  measure^  that  is  to  say,  the 
denomination^  represented  a  less  quantity  of  silver. 
This  example  will  help  us  understand  the  difference 
between  money  as  a  medium  and  money  as  a  meas- 
ure. Dollars  and  cents  perform  their  duties  as ^ 
medium  by  virtue  of  their  being  commodities ;  they 
perform  their  duties  as  a  measure  by  virtue  of 
their  being^^nominations.  Yet  the  denominations, 
though  spelled  and  sounded  as  before,  vary  with 
every  change  that  takes  place  in  the  medium. 


a«»^ 


244  ELEMENTS  OF  POLITICAL  ECONOMY. 

There  are  two  kinds  of  changes  to  which  a  metal- 
'  ^^  lie  money  is  liable,  considered  as  a  medium  of  ex- 
change. First,  a  less  quantity  than  before  of_a 
precious  metal  may  go  to  a  certain  coin.  In  1834, 
the  gold  eagle  of  the  United  States  was  reduced  in 
weight  from  270  to  258  grains,  and  the  alloy  in- 
creased to  one  part  in  ten  from  one  part  in  twelve. 
This  was  taking  out  more  than  six  parts  of  gold  out 
of  every  100  parts,  in  all  the  gold  coins  of  the  coun- 
try. Yet  the  coins  bore  the  same  names  as  before. 
As  a  medium,  other  things  remaining  equal,  their 
purchasing-power  was  diminished  more  than  six  per 
centum;  and  consequently,  as  a  measure  of  other 
values,  the  denominations  of  these 'coins  varied  sim- 
ultaneously and  equally  with  the  coins  themselves 
Secondly,  coins  are  liable  to  change  in  their  function 
as  a  medium  from  changes  in  the  general  purchas- 
ing-power of  the  metals  themselves.  If  for  any 
reason  an  ounce  of  gold  will  buy  less  of  other  things 
than  formerly,  the  coins  cut  from  that  gold  will  buy 
less  than  formerly,  and  this  change  in  the  medium 
will  be  followed  by  a  corresponding  change  in  the 
measure.  Other  tables  of  denominations  have  a 
^  ^  i  *  <^xvv*vs. .  basis  independent  of  the  things  which  they  measure, 
**^  "^  and  are  not  variable  by  the  quality  or  quantity  of 
*/YV  *  those  measurable  things.  A  French  metre,  for  ex- 
■  '  ample,  is  an  invariable    unit  of   length    the   world 

over;  so  is  one  of  Troughton's  inches;  but  this  ia 
not  true  of  the  denominations  of  money  at  all 
Pounds,  dollars,  guilders,  francs,  and  their  subdivis- 
ions, are  denominations  of  value^  which  is  a  vari- 
able relation,  and  as  denominations  they  follow  the 
fortunes  of  the  coins  whose  names  they  are.     When 


ON  MONEY.  245 

the  current  dollar,  for  instance,  sinks  to  one  half,  or 
rises  to  twice  its  previous  purchasing-power,  we  call 
it  a  dollar  all  the  while,  the  denomination   perpet- 
ually shifting  with  every  variation  of  the  thing.    The 
same    name    attaches   to    a    shifting   denomination. 
The  denominations  of  value,  then,  are  not  an  inde- 
pendent standard  to  which  values  themselves  can  oe 
referred,   as  lengths   are  referred   to  the   metre,  but 
vary  with  the  varying  purchasing-power  of  the  coins, 
so  that  money  as  a  measure  is  only  uniform  when  ^^^-^^^^  ^  ^ 
money  as  a  medium  is  uniform.     So  indispensable,'^*'*  o<n^ 
however,  in  all  exchanges  is  some  common  measure 
of  value,  that  the  denominations  of  money,  notwith-  Am-vc^  ^ 
standing  their  variable  character,  are  universally  em-^^^'-e^'T^-^T^ 
ployed  in  estimating  and  exchanging  commodities,Ar>^6v>^.«>o  # 
even  when  no  money  as  a  medium  is  used.  <W»i;H^.aKi 

Without  reflection,  it  might  be  supposed,  that, 
since  the  measure  rises  and  falls  with  the  medium, 
no  practical  error  is  liable  to  follow  the  confounding  S^^-t^-^-^  ^ 
of  the  two  functions  ;  but  it  is  the  very  sympathetic'-^  ^t-vx-c  <: 
connection  between  the  two  that  gives  rise  to  theT*-^  l'^**^ 
possibility  of  error.  If  the  units  of  money  were, 
like  the  linear  units,  inflexible,  so  that  all  variations 
of  the  medium  could  be  instantly  detected  by  a  ref- 
erence to  the  standard  of  measure,  there  would  be 
no  difficulty  at  all :  I  could  loan  a  thousand  dollars 
for  one  year,  or  ten  years,  and,  however  much  the 
medium  might  vary  in  the  interval,  be  sure  that  I 
should  receive  back  just  as  much  purchasing-power 
as  I  loaned,  with  the  interest  on  the  same ;  it  might 
be  more  or  fewer  pieces  than  the  number  I  loaned, 
which  is  a  matter  of  indifference.  As  it  is,  no  lender 
can    have    any   such    assurance.      The   borrower   is 


246  ELEMENTS  OF  POLITICAL  ECONOMY. 

bound  to  pay  back  with  interest  the  same  numbei 

of  dollars  as  he  received,  although  the  dollar-medium, 

and  hence  the  dollar-measure,  may  meanwhile  have 

fallen  or  risen  greatly.     In  the  United  States,  for  the 

jj  _    .  past  twelve  years,  the  current  money  has  exchanged 

."^  '        against  gold  from  110  to  285  of  the  one  for  100  of 

^^   ov^vj.    ^^^  other;  and  it  is  very  obvious  that  all  debts  of  old 

;/|h»>^A^  '^'"standing,  paid  in  this  period,  have  been  only  legally, 

't*^'"^*^^       and   not  actually,  liquidated;    and    that  debts  con- 

fc,M,KU^  ,      tracted  when  the  depreciation  was  more  and   paid 

when  it  was  less  were  more  than  actually  liquidated. 

This,  of  course,  presupposes,  what  we  are  not  yet  in 

a  position  to  assume,  that  gold  remained  a  proper 

.^  tsrtxj^         and   uniform    standard.       The    subtle    error   to    be 

A^d  ^  avoided  alike  in  discussion   and  in   practice  is,  to 

suppose  that  money,  either   as  a  medium  oi;  as  a 

measure,  remains   unchanged,  simply   because    the 

name    remains   unchanged  by  which  we  designate 

its  denominations. 

'    vwo^-T^v^      It  niay  be  asked,  why  cannot  this  source  of  error 

^*;^^' be  obviated?     I  reply,  that  the  error  may  be  obvi- 

^^va^>  ■         ated,  but  the  source  of  it  cannot  be  obviated  from 

_  ^  the  nature  of  the  case.     It  was  shown  in  our  chap- 

^  ^  y.  r^  '     ter  on  Value  that  to  find  an  invariable  measure  of 

value  is  a  natural  impossibility.     Money,  as  it  is  the 

medium   of  exchange,   is  also  the   best   attainable 

measure  of  value,  and  is  used  throughout  the  civil- 

,  >^^    I  '^^^  world  to  compare  with   each  other  all  values 

^'^  f^' '  except  its  own  ;  but  since  value  in  general,  and  the 

value  of  money  as  well,  is  a  thing  of  relation,  and 

varies   with    every   change   affecting   either   of   the 

things  exchanged,  as  much  by  changes  affecting  the 

things   it   exchanges   for    as   by   changes    affecting 


^^KP\ 


ON  MONEY.  247 

itself,  —  the  value  of  a  hat,  for  instance,  as  estinnated 
in  gloves,  increasing   by  any  cheapened  process  in 
glove-making,  though  no  change  at  all  take  place  in 
the  cost  of  hat-making,  —  a  perfect  measure  of  value 
is    impossible.       Therefore     the    denominations    of 
money,   which   is  the  best  attainable    measure,  can 
never  have  a  meaning  absolutely  fixed,  but  slide  npl/^aJr^^eyvt^o 
and    down  the    scale  along  which  the  purchasing-"^ />^vtA/K^# 
power  of  money  as  a  medium  is  moving,  and  they  t  e^-^f^*^^ 
are  consequently  useless  as  a  standard  to  detect  any  *"*^  ^'J^^a 
changes  in   the   medium  itself,  while,  the   medium 
remaining  uniform,  they  instantly  detect  the  changes 
in  all  other  purchasing-powers.     This  will  always  be 
so.     The  same  difficulty  does  not  occur  in  having  a 
perfect  measure  of  length  or  of  capacity,  —  a  perfect 
inch  or  a  perfect  pint.     The  French  have  a  perfect 36J:^'e,<..^ 
system  of  measures  and  weights.    Their  mathemati-  ^mW^**:  i^ 
cians  measured  an  arc  of  the  earth's  circumference, '^^*''*^-«-^  "}-^ 
and  thus  determined  the  absolute  length  of  a  degree 
of   latitude.     Three   hundred  and  sixty  times  this 
length  makes  up  the  length  of  the  earth's  circumfer- 
ence,—  an  invariable  measure  recoverable  again  even 
if  it  should  be  once  lost.     This  measure  divided  by  ^jJ^L.^  . 
40,000,000  gave  the  French  nation  their  metre,  which 
is  a  perfect  unit  for  the  measure  of  length.     A  tenth 
part  of  the  metre  cubed  gave  them  their  litre,  which 
is  a  perfect  unit  for  the  measure  of  capacity.     The 
weight  of  a  hundredth  part  of  a  metre  cubed  of  dis- 
tilled water  at  the  temperature  of  maximum  density 
is  the   gramme,   an   invariable   unit  of  weight.     A 
linear  length  of  ten  metres  squared  gives  the  are,  the 
unit  of  surface.     A  perfect  measure  of  anything  de- 
mands for  its  starting-point  something  absolute  and 


248  ELEMENTS   OF  POLITICAL  ECONOMY. 

invariable:  in  value  there  is  nothing  absolute;  w€ 
-^  «..w  . «        begin  with  a  relation,  and  therefore  an  unchangeable 
yt^^.^   ^.       measure  is  not  to  be  looked  for.     Still,  it  is  vastly 
important  for   the    interest   of   exchange    that   the 
accepted  measure  of  value  be  as  little  liable  to  flue- 
.  tuations  as  possible,  especially  in  all  cases  in  which 

lapse  of  time  is  involved  before  the  exchange  is  fully 
consummated.  For  precisely  the  same  reason  that 
L  ityf^ly^y^^,  the  bushel-measure  should  be  of  the  same  capacity 
in  sowing-time  and  in  harvest,  to  sell  by  and  buy  by, 
always  a  bushel,  no  more  and  no  less ;  and  the  yard- 
stick an  inflexible  measure  of  length,  the  same  foi 
buyer  and  seller,  always  thirty-six  of  Troughton's 
inches,  no  more  and  no  less ;  so,  as  far  as  it  is  pos- 
sible in  the  nature  of  things,  ought  the  medium  and 
hence  the  measure  of  values  to  represent  year  in  and 
,  year  out  a  uniform  degree  of  purchasing-power.     If 

^v'^-if^'^inoney  had  but  one  function,  namely,  to  serve  as  a 
present  means  of  exchange;  if  there  were  no  credit, 
contracts,  annuities,  involving  the  element  of  time; 
if  the  character  of  the  medium  did  not  also  deter- 
mine the  signification  of  the  measure;  then  the  sub- 
ject of  money  would  be  easily  understood,  and  the 
substance  that  should  serve  as  money  would  be  a 
matter  of  comparative  indifference.  As  it  is,  the 
second  and  more  delicate  function  of  money  both 
complicates  the  theme,  and  excludes  from  the  cate- 
gory of  good  money  all  but  one  or  tw-o  of  the  sub- 
stances that  have  ever  been  used  as  money.  We 
have  just  now  seen  the  radical  reasons  why  no 
money  can  even  tolerably  perform  its  function  as  a 
measure  that  is  not  tolerably  uniform  in  its  value  as 
a  medium.  This  consideration  brings  us  naturally 
to  our  third  specific  proposition. 


ON  MONEY.  249 

3.  Gold  and  silver  constitute  the  best  money. 
The  purposes  of  money  have  been  served  in  dif* 
ferent  countries  and  in  different  ages  by  a  variety  of 
products,  according  to  the  taste  and  circumstances  of  ^^^^^f^r****'  *^ 
the  people.  Cattle  have  been  employed  as  vnouey o^^yt^t^o^^^'-e^ 
among  pastoral  people  in  almost  all  periods  of  the 
world,  and  are  still  employed  for  this  purpose  in 
Africa.  Slaves  among  the  Anglo-Saxons ;  wampum 
among  the  American  Indians;  salt  in  Abyssinia; 
codfish  in  Newfoundland  ;  tobacco  in  Virginia; 
wheat  in  Massachusetts;  nails  in  Scotland;  stamped 
leather  among  the  Carthaginians,  and  others ;  bark 
stamped  with  the  image  of  the  sovereign  in  China ; 
platina  in  Russia;  copper,  simple  or  compounded 
ivith  other  metals,  among  the  ancient  Romans,  and 
most  other  nations ;  iron  among  the  Spartans ;  gold 
and  silver  among  all  civilized  nations  sooner  or 
later ;  have  been  or  still  are  used  as  money.  Of  all 
these  products,  the  two  last  have  shown  themselves 
to  be  best  adapted  for  the  purposes  of  money,  and 
have  come  consequently  into  universal  use  in  the 
commercial  world.  Experience  has  not  only  demon- 
strated the  superiority  of  these  metals  over  all  other 
forms  of  money,  as  is  shown  by  the  fact  of  their  i.<i^c<H.c^  *^ 
universal  adoption,  but  reason  also  is  able  to  tell  us  ;.c»^a^  ^ 
why  gold  and  silver  are  the  best  money.  Cc^i^^^h 

(1.)     On    account  of   their    comparatively  steady  .^^^r^^  '^^^ 
value.     This   is   the   main   reason,  and   it  must  be  ' 

firmly  grasped.  There  is  no  end  to  the  confusion 
which  has  crept  over  discussions  on  money  fi:om  the 
circumstance  that  the  writers  have  not  first  of  all 
determined  for  themselves  with  fixed  clearness  what 
value  is.     This  must  be  done  at  the  outset,  if  there 


250  ELEMENTS  OF  POLITICAL  ECONOMY. 

is  to  be  the  least  hope  of  sound  results.     Some  writ- 
ers speak  of  money  as  destitute  of  intrinsic  value, 
because  we  cannot  eat  it,  drink  it,  wear  it,  or  make 
4*j?/..-A         any  other  direct  use  of  it.     Mr.  Macleod,  the  emi- 
nent English   economist,  to  whom   I  have  already 
acknowledged  myself  as  under  many  obligations,  re- 
gards money  as  required  only  to  measure,  record,  and 
transfer  debts.     Money  is,  according  to  him,  a  repre- 
sentative of  debt.     Now,  I  cannot  agree  with  either 
•-to  d-v^^jL.  of  these  representations.     Value  is  value,  and  there 
,  cKv^K^*^    is  only  one  kind  of  it,  and  the  epithet  intrinsic  is 
V,     only  used  to  help  out  a  lame  theory,  and  no  such 
r^^  epithet  is  pertinent  to  the  word  value,  and  no  one 

'^'^,\^^/y\  can  show  anything  different  in  the  value  of  money, 
^/  either  in  respect  to  the  way  in  which  it  arises,  or 
in  the  laws  which  control  it,  from  the  value  of 
any  other  commodity,  excepting  only  the  difference 
already  pointed  out,  that  money  by  the  usages  of 
society  has  a  generalized  instead  of  a  specific  pur- 
chasing-power. It  is  all  false  to  speak  of  gold  and 
silver  money  as  the  representative  of  value.  It 
.;t;^WA^  represents  nothing  but  itself.  It  will  buy  other 
things  certainly,  and  so  will  a  bushel  of  wheat. 
Value  is  simple  purchasing-power,  and  money  has 
value  because  we  can  purchase  with  it,  exactly  as 
everything  else  has  value  for  that  very  reason. 
Society  is  so  constituted  that  a  want  is  felt  in  it  of 
some  medium  of  purchase ;  this  want  cannot  be 
supplied  without  an  effort ;  whoever  makes  the  effort 
will  demand  a  corresponding  effort  made  for  him ; 
when  it  comes  to  the  exchange  of  the  medium  for 
the  wheat,  for  example,  there  stand  face  to  face,  aj^ 
in  every  other  instance  of  exchange,  two  desires  and 


ON  MONEY.  251 

two  efforts ;  there  is  then,  as  always,  a  reciprocal 
estimation  of  the  two  services  about  to  be  ex- 
changed, and  the  estimation  agreed  on  is  the  value 
of  the  medium  expressed  in  wheat.  If  the  want  of  ^>^'<^  "^ ' 
any  medium  of  exchange  is  less  felt  in  any  commu-'?'^^^'' 
nity,  or  if  the  effort  required  to  secure  it  be  for  any***^ r^  ^ 
reason  less,  other  things  remaining  the  same,  the 
value  of  the  money  will  be  less,  that  is  to  say,  it 
will  purchase  less  of  other  things.  If  the  demand 
for  money  as  an  instrument  of  purchase  be  greater, 
or  the  obstacles  in  the  way  of  its  supply  be  increased, 
other  things  as  before,  the  value  of  the  money  will 
be  more.  It  is  the  old  circuit  over  again  of  wants, 
efforts,  estimations,  satisfactions.  The  value  af//^^t'«qj^ 
money  arises  under  the  same  conditions  as  every^--  ^'-*  ^ '* 
other  value,  and  is  variable  by  any  change  in  any 
one  of  the  four  elements  which  alone  can  vary  the 
value  of  anything.  Two  desires  and  two  efforts 
invariably  precede  every  exchange.  A  change  in 
any  one  of  these,  the  rest  unchanged,  can  vary  value, 
and  nothing  else  can  vary  it;  and,  as  it  seems  to  me, 
no  person  has  ever  shown  or  can  show  that  the  value 
of  money  is  in  any  respect,  save  the  superficial  one 
already  noticed,  exceptional  "and  peculiar.  And  it 
also  seems  to  me  that  nothing  more  is  needed  in 
order  to  remove  the  last  vestiges  of  the  dark  cloud 
which  has  so  long  overhung  this  subject,  than  to 
familiarize  one's  self  first  of  all  with  the  true  doctrine 
of  value  in  general,  and  then  hold  fast  the  truth,  ex- 
emplified on  every  side,  that  the  value  of  money  i^ 
just  like  any  other  value. 

Gold  and  silver,  then,  as  money,  have  value  in  the 
Bame  sense  and  for  the  same  reason  as  any  other 


252  ELEMENTS  OF  POLITICAL  ECONOMY. 

productive  instrument,  and  we  must  now  attend  to 
the  reasons  why  their  value  is  so  steady. 
^'^'''  (a.)  On  account  of  the  comparatively  steady  de- 

mand for  these  metals.     Gold  and  silver  are  wanted 
for  two  general  purposes :  first,  to  be  used  as  money, 
and  second,  to  be  used  in  the  arts;  and  it  has  been 
estimated  that  about  two   fifths  of  the   aggregate 
^^^^ :         quantity  in  the  world  is  in  the  form  of  money,  and 
^  -J  c^.^       the  other  three  fifths  in  the  form  of  plate,  utensils,  and 
*3>^dy..      ornaments.     Now,  so  far  as  the  element  of  desire 
controls  value,  the  purpose  for  which  any  article  is 
desired  is  a  matter  of  indifference.     The  aggregate 
desire  for  it  for  all  purposes,  accompanied  with  the 
^V  t4HA*ZjuLu offer  of  something  with  which  to  buy  it,  constitutes 
s.uS"  the  demand;  and  the  more  universal  the  desire,  no 

matter  for  what  purpose,  the  steadier  the  demand, 
and,  so  far  forth,  the  steadier  the  value.     It  is  worth 
noticing,  as  a  point  still  too  little  noticed,  that   it 
is  not  the  demand  for  the  precious  metals  as  coin 
alone  that  determines   their   general  value,  nor  the 
JU^  *^'       demand  for  them  in  the  arts,  but  the  combined  de- 
Y*^^  JT*      rnand  for  all  purposes;  just  as  the  value  of  barley  is 
i^r*  regulated,  partly  by  the  demand  for  it  for  food,  and 

partly  by  the  demand  for  it  for  malting  purposes. 
Hence  an  ounce  of  bullion  of  the  standard  fineness, 
destined  for  the  smelting-pot  of  the  artisan,  is  worth 
within  a  very  trifle  as  much  as  an  ounce  of  coined 
money.  By  the  law  of  the  Bank  of  England  an 
ounce  of  standard  gold  is  coined  into  £3  175.  li)^d.^ 
and  the  Bank  is  obliged  to  buy  all  bullion  and  for- 
eign coins  of  the  standard  fineness  offered  to  it  at 
£2  175.  9d,  per  ounce — a  difference  of  three  half- 
pennies.    Now,  gold  and  silver  are  so  indispensable 


ON  MONEY.  253 

ill  the  form  of  money,  so  beautiful  in  the  form  of 
ornaments,  so  well  adapted  to  serve  the  purposes  of 
luxury  and  love  of  distinction,  so  really  useful  in  the       "-''  "^ 
arts,  that  the  demand  for  them  is  constant  and  wellv^T^^^ " 
nigh  universal;  and  if,  in  the  progress  of  civilization,  '^^ 

a  less  quantity  should  be  desired  for  personal  orna-'^*''"**^ 
mentation    and  purposes  of  luxury,  a   greater  will    'C-^ 
doubtless  be  required  for  the  other  uses;  and  so,  as,^^^^^ 
the  demand  in  the  past  has  been  steady,  and  perhaps.  ?-^^-^.^ . 
steadily  increasing,  there  is  every  reason  to   expect 
the  same  for  the  time  to  come.     And  it  contributes 
to  the  steadiness  in  value  of  the  gold  and  silver  coin, 
that  there  is  at  hand  in  the  form  of  plate  a  reservoir 
from  which   a  chance  chasm  in  the  coin  may  be 
replenished,  or  an  extra  demand  for  it  answered. 

(6.)   On  account  of  their  tolerably  uniform  cost  of  ^A.^Zj^i-'^ 
production.     Not  desires  alone,  but  efforts  as  well, '^/^•^^-^^-^ 
regulate  value.    Supply  is  the  correlative  of  demand; 
and  when  to  a  steady  demand  there  answers  a  steady 
supply,  realized  under  conditions  of  pretty  uniform 
difficulty,  there   will  be  of  course   a  pretty  steady 
value.    Nature  herself  has  indicated,  in  a  manner  not 
to   be    mistaken,    her   intention   that    these    metals 
should   be   the    money   of    the   nations.      She   has 
scattered  them  all  over  the  earth,  and  so  scattered 
them  that  the  cost  of  their  production  has  been  won- 
ierfully  uniform  ever  since  civilization  and  commerce    '  ' 
began.     There  have  been  but  two   marked  changes 
in  the  value  of  ajold  and  silver  throusjhout  the  com-  ^^^^^^  ^-^-^^ 
mercial  world  in  the  last  thousand  years;  the  first,'^r^^  '^ 
in  the  sixteenth  century,  in  consequence  of  the  occu-J^^'^T^ 
pation  of  Mexico  and  South  America  by  Europeans,' 
when  the  value  of  the  precious  metals  diminished, 


254  ELEMENTS  OF  POLITICAL  ECONOMY. 

silver  a  good  deal,  it  is  difficult  to  say  how  much, 
and  gold  considerably  less;  the  second,  in  conse- 
quence of  the  discovery  of  the  gold-fields  of  Califor- 
nia and  Australia  in  the  present  century,  which,  it  is 
thought  by  most,  has  still  further  diminished  the 
value  of  gold.  With  these  exceptions,  and  similar 
ones  are  not  likely  to  recur,  these  meta;ls  have 
always  maintained  and  are  likely  to  maintain  a 
remarkable  uniformity  of  value,  so  far  as  uniform 
cost  of  production  can  give  it.  Even  these  changes 
became  only  gradually  perceptible,  and  did  but  lit- 
tle injury  to  individuals,  scarcely  disturbing  the  jus- 
tice of  exchange  or  the  measure  of  value,  except 
in  cases  of  long  annuities  and  similar  obligations. 
A  universal  rise  of  prices  soon  adjusted  exchanges 
to  the  new  state  of  things. 

(c.)  On  account  of  their  quantity.  The  amount 
of  gold  and  silver  in  circulation  in  the  commercial 
world,  to  say  nothing  of  the  quantity  so  easily 
brought  into  circulation  from  the  reservoir  of  plate, 
is  so  vast,  that  it  receives  the  annual  contributions 
from  the  mines  much  as  the  ocean  receives  the 
waters  of  the  rivers,  without  sensible  increase  of  its 
volume,  and  parts  with  the  annual  loss  by  detrition 
and  shipwreck,  as  the  sea  yields  its  waters  to  evapo- 
ration, without  sensible  diminution  of  volume.  The 
yearly  supply  and  the  yearly  waste  are  small  in  com- 
parison with  the  accumulations  of  ages;  and  therefore 
the  relation  of  the  whole  mass  to  the  uses  of  the 
world,  and  the  purchasing-power  of  any  given  por- 
tion, remain  comparatively  steady.  It  is  probable 
that  production  at  the  mines  might  cease  altogether 
for  a  considerable  interval  without  very  sensibly  en- 


ON  MONEY".  ^JD 

hancing  throughout  the  commercial  world  the  value 
of  gold ;   as  it  is  certain,  from  experience,  that   a 
production  very  largely  augmented  only  gradually, 
and  after  a  considerable  interval,  diminishes  its  value 
The  mass  of  the  precious  metals  has  been  aptly  com- 
pared  to   the    heavy    balance-wheel   in    mechanics, 
which  preserves  an  equable  and  working  condition 
of  the  machinery  under  any  sudden  increase  of  the 
power,  and  even  when  the  power  is  for  a  moment 
withdrawn.    At  this  point  a  caution  is  needful.     Be- 
cause it  is  affirmed  that  the  great  amount  of  the 
precious  metals  is  a  ground  of  their  firm  value,  it 
must  not  be  supposed  that  we  are  going  beyond  our 
general  doctrine,  and  introducing  another  element, 
namely,  quantity,  besides  the  four  elements  which, 
as  we  have  so  often    alleged,  can   alone  vary  the 
value  of  any  service;  quantity,  in  itself,  is  not  an 
element  capable  of  varying  the  value  of  anything, 
but  taken   in    connection  with  durability,  it  is   an 
element  of  what  might,  perhaps,  with  propriety  be 
called  the  inertia  of  value,  and  tends  to  keep  the 
purchasing-power   of  gold   and   silver  where   it  is. 
Value    and    steadiness    of    value   are   two    distinct J^^^^*^  ^ 
ideas.     The  present  value  of  an  ounce  of  gold  ex-'^*^*''^^^'^ 
pressed  in  any  other  commodity  is  decided  by  four^^"^^    . 
things  alone  ;  but  other  elements  besides  these  may       '^^-^^^^^-^ 
help  determine  that  that  ounce  of  gold  shall  have 
ten    years    from    now  a   purchasing-power  approxi- 
mately the  same  as  now.     It  will  depend,  of  coui^se,/?^^  laZ< 
in  the  last  analysis,  upon  the  relation  of  the  then  de-^^^ 
mand  to  the  then  supply ;  yet  the  vast  quantity  of  -rj"^^    [^ 
the   precious    metals    in    existence,   combined    with /^^^^^^^  ^ 
their    durability,   prevent  those    fluctuations  in   the 


256  ELEMENTS  OF  POLITICAL  ECONOMY. 

supply  which  are  so  destructive  to  a  steady  value. 
It  is  not  as  with  the  fruits  and  the  grains,  whose 
value  varies  perpetually  with  the  seasons,  and  which 
are  so  perishable  that  they  must  be  sold  soon  or 
never :  gold  and  silver  are  almost  indestructible,  and 
except  by  wear  and  accident,  the  existing  mass  is 
not  liable  to  be  lessened,  and  in  so  far  as  the  annual 
production  from  the  mines  exceeds  the  yearly  waste 
there  is  a  natural  provision  made  for  the  natural  in- 
crease of  demand,  to  supply  the  wants  of  the  world 
for  currency  and  for  the  arts,  without  much  disturb- 
ing the  relation  of  the  demand  and  supply.  The 
quantity,  in  connection  with  the  durability  of  the 
precious  metals,  helps  preserve  to  them  a  tolerably 
steady  value  from  generation  to  generation. 

(d.)  On  account  of  their  fluency.  Gold  and  sil- 
ver are  in  demand  the  world  over.  Having  great 
value  in  comparatively  small  bulk,  they  are  easily 
transported  from  continent  to  continent ;  and  when- 
ever, from  any  cause,  they  become  relatively  in 
excess  in  •  any  country,  and  thus  lose  there  a  por- 
tion of  their  previous  purchasing-power,  there  is  an 
immediate  motive  to  export  them  to  other  countries 
where  their  power  in  exchange  is  greater,  and  thus 
the  equilibrium  is  restored.  The  value  of  gold  and 
silver  throughout  the  commercial  world  is  thus  kept 
pretty  steady  by  the  facility  with  which  they  are 
carried  from  points  where  they  are  relatively  in  ex- 
cess to  points  where  they  are  relatively  in  deficiency. 
There  is  a  gain  in  carrying  them  to  those  countries 
where  their  power  of  purchase  is  the  greatest,  be- 
cause  more  commodities  can  be  obtained  for  them 
than  at   home;   and  private  motives  here  coincide 


ON  MONET  257 

with    public  welfare,  since  what  the   trader's  do  in 
transporting  gold  and  silver,  with   an   eye  to  theii 
own  interest,  helps  maintain  at  home  and  abroad 
the  steady  value  of  these  commodities.    This  law  of  1U^'^ ^o~f 
the  distribution  of  the  precious  metals  by  commerce,  ^p^j--*^ 
and  the  equilibrium  of  value  resulting  therefrom,  is i^^^*^^^ 
as  natural  and  beautiful  as  the  law  which  preserves  ''^'^^^-^  • 
the  level  of  the  ocean,  or  that  which  balances  the 
bodies  of  the  planetary  system.     This  has  come  at 
length  to  be  recognized  by  the  nations,  and  the  laws 
which  used  to  forbid  by  heavy  penalties  the  expor- 
tation of   gold  and  silver  are  £lll  swept  away,  and 
these  metals  are  now  free  to  go,  and  do  actually  go, 
where  they  can  obtain  the  most  in  exchange.     It  is 
absurd  to  suppose   that  their  owners  would  carry 
them  out  of  a  country,  unless  they  were  worth  more 
abroad   than  at  home,  and  therefore  the  prejudice 
which  exists  still  in  this  country  against  the  expor- S/p^t^^^^ 
tation  of  gold  is  a  senseless  prejudice.     The  gold  is 
not  given  away ;  it  is  sold,  and  sold  for  more  than  it 
will  buy  at  home ;  otherwise  it  would  not  be  carried 
abroad.     There  is  the  same  kind  of  gain  as  in   all 
other  exchanges,  and  this  great  incidental  advantage 
in  addition,  that,  by  means  of  free  commerce  in  the 
precious  metals,  their  general  value  is   kept  pretty 
uniform  throughout  the  world,  and  a  chance  redun- 
dancy in  one  currency  is  drawn  off  to  supply  a  cor- 
responding deficiency  in  another.     It  may  be   laid 
down  as  an  axiom,  that  no  country  will  export,  for 
the  sake  of  getting  other  things,  those  things  which 
are   more    needful   for  its  own   welfare ;    and  there 
need  not  be  the  slightest  fear  that  any  nation  which 
cultivates  its  own  advantages   under   freedom  will 

17 


258  ELEMENTS  OF  POLITICAL  ECONOMY. 

ever  lack  a  sufficient  quantum  of  the  precious  metals. 
Under  freedom,  and  so  long  as  human  nature  con- 
tinues what  it  is,  these  metals  will  go,  and  go  in  just 
the  right  proportions,  to  and  from  those  countries 
which  produce  and  offer  in  exchange  those  desirable 
services  which  other  countries  want.  The  greater 
the  enterprise  and  skill,  the  keener  the  development 
of  all  peculiar  and  presently  available  resources,  the 
more  honorable  and  free  the  commercial  system,  the 
surer  is  any  nation,  whether  it  be  a  gold-bearing 
country  or  not,  of  securing  the  gold  and  silver  which 
it  needs.  This  is  so,  because  there  will  be  a  good 
market  to  buy  in,  and  they  who  have  gold  will 
resort  thither  to  buy.  But  such  a  nation  will  also 
want  to  buy  other  things  besides  gold  and  silver,  and 
when  enough  of  the  latter  are  secured  for  the  cur- 
rency and  for  the  arts,  the  residue  will  be  exported, 
perhaps  to  the  very  countries  from  which  it  orig- 
inally came,  in  payment  for  some  products  which 
those  countries  have  an  advantage  in  producing. 
^4rY^  «<^w,  The  United  States  is  a  gold-producing  country,  and 
'^^'t^  exported  in  the  years  1850-1860,  both  inclusive, 
$502,789,759,  coin  and  bullion ;  and  during  the 
same  period  we  imported  from  other  countries 
^>C(A^v-V'$81,270,571,  coin  and  bullion.^  Now,  there  was  a 
C^  Avc^-„  ^  double  advantage  in  that  exportation.  In  the  first 
^-wwvxU^t  place,  more  and  better  commodities  were  secured  to 
the  country  than  tne  gold  could  have  bought  in  the 
country,  for  otherwise  it  would  not  nave  been  carried 
abroad  ;  and,  in  the  second  place,  this  large  sum  car- 
ried abroad  to  various  countries  in  exchange,  not 
only  prevented  the  disturbing  effect  on  our  own  cur- 

1  Report  on  the  Finances,  1863.  ^ 


ON  MONEY.  259 

rency  of  more  than  doubling  in  ten  years'  time  our 
stock  of  gold,  thus  inevitably  depreciating  the  whole 
mass,  but  also,  by  causing  the  new  gold  to  impinge 
on  the  whole  world's  stock  instead  of  on  the  cur- 
rency of  a  single  nation,  the  shock  of  the  new  pro- 
duction on  the  measure  of  value,  though  perceptible, 
was  reduced  and  deadened.  The  world's  mass  of 
the  precious  metals  is  comparatively  torpid  beneath 
the  action  of  an  accretion  which  would  break  down 
by  its  weight  the  currency  of  a  single  nation.  There- 
fore, the  fluency  of  gold  and  silver,  by  which  they 
pass  easily  in  commerce  to  those  places  where  their 
present  value  in  exchange  is  greatest,  and  return  as 
easily  when  the  conditions  are  reversed,  tends  pow- 
erfully to  make  their  general  value  uniform  through- 
out the  world,  and  consequently  to  make  them  the 
best  medium  of  exchange  and  the  best  measure  of 
value. 

(e.)  On  account  of  this  circumstance,  that  every  ^^u«x  «u^j 
general  rise  or  fall  in  the  value  of  gold  and  silvef^^  ~^  ^ 
tends  to  check  itself.  This  principle,  indeed,  is  ap-^^^*"^*^*^ 
plicable  to  the  value  of  all  commodities,  but  owing^g^,.^  /f[^ 
to  their  quantity  and  durability  preeminently  appli-  " 
cable  to  the  ^^alue  of  the  precious  metals.  The  check 
is  double  in  either  direction.     First,  let  us   suppose  / 

that   the  purchasing-power  of  an  ounce  of  gold  or^  ^  '^[^ 
silver  be  rising :  then,  production  will  be  stimulated^^^  ju*^.^ 
at  all  the  mines,  and  the  more  stimulated  as  the  rise^;r.^, 
is  more,  and  the  new  and  enlarged  supply  will  tend'^-^*"'  ^' 
to  check  a  farther  rise,  and,  unless  the  permanent  ^6"  V*^*'^*^ 
mand  has  been  intensified,  to  bring  back  the  value 
to  the  old  point ;  moreover,  when  there  is  a  rise  in 
the  value  of  the  coin,  there  is  a  less  quantity  required 


260  ELEMENTS  OF  POLITICAL  ECONOMY. 

to  do  the  same  amount  of  business,  and  the  demand 
for  gold  which  causes  the  rise  tends  to  be  checked 
by  the  rise  itself,  because  a  less  quantity  is  needed 
in  the  currency  in  consequence  of  the  rise.  This 
supposes,  of  course,  that  the  exchanges  mediated  by 
money  are  no  greater  than  before.  Thus  a  rise  of 
value  in  gold  and  silver  checks  itself  by  natural 
laws  in  two  ways.  Just  so  of  a  fall  in  their  value. 
Production  is  thereby  slackened  at  the  mines,  and 
the  lessened  supply  tends  to  enhance  value  ;  and,  if 
the  same  business  is  to  be  done  as  before,  there  is  a 
stronger  demand  for  currency  while  the  fall  con- 
tinues, and  this  demand  tends  also  to  restore  the 
value.     All  this  is  in  the  interest  of  a  steady  value. 

(/.)    On  account,  lastly,  of  this  circumstance,  that 
a   stronger   demand   for  currency  is  met  either   by 
increasing  the   stock   of  coin,   or  by  an   increased 
j^^^,  rapidity  of  circulation  of  that  on  hand.     A  brisker 
^i^^^J^^^^,  ,     demand  for  money,  especially  if  it  be   temporary, 
r^lC  I^v-,.^^^^  "°*  necessarily  enlarge  the  supply,  or  alter  the 
^^^^^_,^  ^j^-     value,  but  only  hurry  round  the  existing  circulation. 
[•uvuC.  «►;       Oscillations  in  the  demand  are  responded  to  by  a 
^.'      *   slower  or  more  rapid  circulation.     This  tends  most 
admirably  to   keep  the  value  steady  within  certain 
limits.     When   enterprises  are  multiplying  and  ex- 
changes are  being  permanently  increased  in  number 
and  variety,  then  there  must  be  a  larger  amount  of 
money,  and   this  larger  amount  is  secured  in   the 
5vays  already  indicated,  with  perhaps  slight  disturb- 
ances  of  value ;  but  the  temporary  ebbs  and  flows 
of  business   have  no  effect  at  all  on  the   mass  of 
money,  but  only  on  its  movement,  and  its  value  con- 
sequently is  not  disturbed  at  all. 


>»K^**Ai 


'i^ 


ON  MONEY.  261 

These  six  grounds  appear  to  be  satisfactory  and 
sufficient  to  account  for  the  superior  steadiness  of 
the  value  of  gold  and  silver,  so  far  as  their  value  is 
determined  by  considerations  relating  to  the  metals 
themselves.  We  now  proceed  to  the  reasons  addi-  ' 
tional  to  this  why  gold  and  silver  constitute  the 
best  money.  -4. 

(2.)     Because    they  are    self-  reflating.     These  g^  aJ^i^ 
metals    came    to    be,  and   continue   to    be,  money,,^^^       ^j^^j^ 
independent  of  the  enactments  of  any  governmentcva'»|  a<^ 
Government  indeed  coins  them  for  the  use  of  the  ^  ■ 
people ;  but  coinage  is  nothing  in  the  world  but  a         ^ 
public  attest  to  the  quantity  and  quality  of  the  metal      "  t 
contained  in  the  coin.     For  the  trouble. and  expense^ 
of  assaying,  stamping,  and  thus  attesting  the  quan-  ''' 

tity  and  quality  of  the  metal  in  the  coin,  govern-  <^kv^*^^ 
ments  sometimes  charge  the  depositors  of  bullion  a  tVjLj^ 
small  seigniorage;  England  indeed  does  not;  and  9ji'^.^^ 
the  United  States  did  not  till  1853  ;  and  by  the  law 
of  1874  will  not  hereafter ;  and  France  only  charges 
on   gold  coins  .216  per  centum ;  so  that  a  very  in- 
significant part  of  the  value  of  coins  is  due  to  the 
process  of  coining.     The  value   of  coined   money 
regulates  itself  on  just  the  same  principles  as  the     ' 
value   of  wheat   regulates   itself,  and  governments  ^^^^J^^-^"^ 
are   as  powerless   to   alter   the    one    as   the    other. 
Indeed,  the  coining  of  either   metal  by  itself  is  a 
matter  of   quantity  and   quality  alone,  and    not  a 
matter  of   value  at  all;    the  United   States  say  by ^^^'"'-^--^^  " 
law  that  a  gold   dollar  shall  consist  of  25|  grains '^**^^^*f 
troy,  of  which   nine   parts  shall  be  pure  and   one^^*^'*'"^'" 
part   alloy,    but   of    the    value   of  this   dollar   thus 
coined  the  law  says  nothing.     It  can  say  nothing. 


262 


ELEMENTS  OF  POLITICAL  ECONOMY. 


V-Uf  C<JU*  /^-tA-t  ^' ' 


The  coin  is  publicly  attested  so  heavy,  so  fine,  and 
thereafter  it  takes  its  chance  as  to  value.  All  gov- 
ernments have  now  learned,  after  oft-repeated  and 
always  vain  trials  to  regulate  the  value  of  their  coins, 
that  all  they  can  do  is  to  regulate  the  amount  and 
fineness  of  the  metals  contained  in  them.  When, 
however,  it  is  designed  that  both  metals  shall  circu- 
late in  the  same  currency,  then  it  becomes  necessary 
that  government  shall  determine,  as  well  as  it  can, 
not  the  absolute  value  of  either,  but  the  relative 
value  of  each  in  each.  And  here  too  the  value  of 
each,  estimated  in  the  other,  regulates  itself  inde- 
pendently of  edicts  or  enactments.  If  the  legislators 
can  ascertain  in  what  proportions  they  are  exchang- 
ing for  each  other  in  a  free  market,  they  may  mark 
that  as  the  legal  relative  value  of  the  two,  but  they 
must  not  suppose  that  their  work  will  not  require 
revision  from  time  to  time. 

The  value  of  gold  in  silver  has  differed  consider- 
ably in  different  periods  and  countries.  Livy  men- 
tions that  the  relative  value  was  1  to  10  about  189 
B.  c;  Julius  CaBsar  is  said  by  Suetonius  to  have 
exchanged  the  two  on  one  occasion  at  1  for  9 ;  under 
the  early  Roman  emperors,  it  was  1  for  12  ;  from 
Constantine  to  Justinian,  about  1  for  14.  Herodo- 
tus mentions  it  as  1  to  13  in  Greece,  in  his  day, 
which  was  the  fifth  century  before  Christ ;  Plato,  a 
little  later,  calls  it  1  to  12.  In  England,  before  the 
discovery  of  America,  it  was  about  1  to  10 ;  in  1717 
the  last  legal  rating  of  the  two  put  them  at  1  for 
15^,  although  Sir  Isaac  Newton,  in  his  report  to 
Parliament  that  year  as  master  of  the  mint,  shows 
the  market  rate  was  nearly  1  for  15^.     At  that  time, 


ON  MONEY.  263 

tho  rate  in  France  and  Holland  was  1  to  14i,  which 

of  course  made  it   profitable  to  export  silver  from 

England  to  the  Continent.    In  China,  Japan,  and  the 

East  Indies  generally,  gold  has  always  been  cheap 

relatively  to   silver   (in  Japan,  till  1860,  as   1  to  4,  kAiW^a- 

since   then    as  1   to  13^),  which    accounts    for   the 

stream  of  silver  perpetually  flowing  from   Occident 

to  Orient.     In  1792,  when   the   mint   of  the  United 

States  was  established,  the  legal  rate  of  exchange  y. /^"^ /;► 

for   the  two   metals  was  fixed    at  1   for  15,  which 

proved  to  be  an  undervaluation  of  gold,  and  tended 

to  drive  the  gold  coins  abroad.     Mr.  Elliott,  of  the 

U.  S.  Bureau  of  Statistics,  has  shown  that  the  aver-      ^^-tf  j 

age  for  the  thirty  years  just  prior  to  the  discovery  p,^,.^  ^ 

of  the  new  gold  fields  was  1  to  15§  ;  that  after  the 

opening  of  these  fields  in  1848-50,  gold  gradually 

fell,  reaching  its  minimum  of  1  to  15^  in  1859;  and    ,^,Y,uxi' 

that  since  it  has  slowly  advanced  to  1  for  15f,  thectS.*^^^.*,,^  ; 

point    it    now    holds.     This   law    of   self-regulation, 

maintaining  itself  in   spite  of  all  legal  enactments,    ;'~    '     ^ 

led  England  in  1816,  and  the  United  States  in  1853,^^  ^ 

to   abandon   a  double  standard  of  value,  and  prac-^"^^**^'/ 

tically  demonetize  silver  by  degrading  the  coins  in 

weight,  so  that  they  pass  current  at  more  than  six 

per  cent,  above  their  real  value.     English  silver  coins 

are  degraded  63^^  per  cent.;  United  States  smaller 

silver  coins  are  6}f  per  cent,  less  than  silver  dollars ; 

and  consequently,  they  are  only  legal  tender  in  the 

two  countries  respectively  for  40  shillings  and  $5.00. 

The  Bank  of  England  is  only  allowed  to  hold  silver'S'*-'-^^  <^  (L. 

as  the  basis  of  circulation  to  the  extent  of  one  io\xrth.'jtf  Ci-^ . 

of  the  gold  coin  and  bullion  held  at  any  one  time ; 

yet  silver  maintains  its  own  value  in  spite  of  these 


264  ELEMENTS   OP   POLITICAL   ECONOMY. 

disadvantages,  and  is  thought  to  comprise  about  one 
fifth  of  the  whole  metallic  circulation  of  the  realm. 
.   -  ^    y .  It  is  convenient  to  have  at  least  two  metals  in  the 

«  -hJZut^  currency,  notwithstanding  the  impossibility  of  main- 
taining a  steady  legal  relative  valuation  between 
them.  Gold  ought  to  be  exclusively  the  standard ; 
it  ought  to  be  the  only  legal  tender  for  large  sums ; 
but  silver  coins  are  useful  for  the  lesser  exchanges, 
and  there  is  no  present  objection  to  their  being  de- 
based in  weight  so  as  to  allow  a  considerable  change 
in  the  market  value  of  gold  in  silver  without  tend- 
ing to  export  the  silver  coins.  Another  reason  for 
the  use  of  both  silver  and  gold  in  the  coinage  is  the 
increased  stability  in  value  thereby  secured  to  the 
whole  currency.  The  immense  quantity  in  the  world 
of  both  metals  combined,  and  the  opportunity  of  re- 
plenishing a  chance  deficiency  of  the  one  from  the 
stores  of  the  other,  give,  in  accordance  with  princi- 
ples already  explained,  a  superior  stability  to  value. 
Most  currencies,  our  own  included,  have  also  a  third 
metal  or  mixture  of  metals,  to  serve  the  purposes  of 
the  smallest  exchanges,  and  the  coins  made  of  this 
are  usually  largely  overvalued  —  our  nickel  ceijts  of 
1857  cost  the  government  about  half  a  cent  each  — 
and  are  not  legal  tender  for  debts  except  for  very 
small  sums. 
^v.c.Uftj.  vv^r-'.  ^^  ^^'  then,  a  principal  merit  of  metallic  currencies, 
Wi^/*  i^Jliat  the  gold  and  silver  comprised  in  them  determine 
their  own  value  by  natural  laws,  both  relatively  to 
each  other  and  to  all  other  purchasable  things ;  and 
hence  the  quantity  required  in  each  currency  of  the 
world  to  do  the  business  of  that  country  is  a  matte 
which  natural  laws  are  perfectly  competent  to  regu- 


6 


ON  MONEY.  265 


late,  without  any  direct  action  of  government;  and  ^^  ^y^*.., 
governments  may  be  relieved  from  the  difficult  or  x^'-^y^ — ^ 
rather    impossible  task   of   determining   how  much '^^^^^^^'' 
money  their  country  shall  have.     The   distribution'^^*?-, 
of  the  precious  metals  over  the  earth  by  commerce, 
according  to  the  wants  and  circumstances  of  each  ^^^^^^ 
country ,^s  not  perfectly  accomplished  at  present  by  "^^'^^•''^'*^ 
the  natural  laws  which  are  competent  thus  to  dis- 
tribute them,  because  some  of  the  nations  use  still 
some  form  of  credit  as  a  part  of  their  current  money, 
and  also  because  all  the  nations  have  not  yet  come 
to  an   agreement  as  to  the  degree  of  fineness  of 
the  metals  used  in  their  respective  coinage.     These 
obstacles  impede  somewhat  at  present  the  action  of 
the   comprehensive   laws   which   will    one    day   be 
allowed  to   control   this   matter    perfectly.     Nature 
herself  has  made  the  first  grand   provision    for  the  A*^  t^  "^ 
self-regulation  of  the  money  of  the  world,  by  making  ^^tU'-^^^/i  ^ 
pure  gold  and  silver  of  exactly  the  same  quality  all^^'^-^'^  ct* 
over  the  wide  earth.     No  matter  where  it  is  mined,^''"  At^-tj-^-^  ^ 
or  when,  gold  is  gold  and  silver  is  silver.     The  gold 
mined  to-day  in   California  differs  in    no   essential 
respect  from  the  gold  used  by  Solomon  in  the  con- 
struction of  the  Temple.     So  that,  if  the  commercial 
nations  would  come  to  a  common  agreement  as  to 
the  amount  of  alloy  they  will  put  into  their  coins, 
and  then  bring  these  coins,  as  might  easily  be  done, 
into  decimal  or  other  easy  numerical  relations  with  r 
each  other,  it  would  be  a  matter  of  indifference  *o^^^^^^^^^^^  ^ 
every  nation  whether  the  coins  circulating  therein  ^c^  ;^' 

were    exclusively   national   coins    or   not.     Foreign  ^^^3/^^^ 
coins,  to  the  extent  to  which  commerce  would  natu- 
rally bring   them  there,  would  have  just  the  same  ^       . 


&^;  ,,,^^^;5-^^  '■  P^^-^^o^  4t^.^-c^  <t.H^..^Ui  ^^y 


266  ELEMENTS  OF  POLITICAL  ECONOMY. 

circulation  and  credit  as  their  own :  there  would  not 
be,  as  now,  the  trouble  and  expense  of  melting  up 
and  recoinage ;  the  balances  of  trade  could  be  paid 
indifferently  in  any  coinage,  and,  as  we  shall  soon 
see,  every  nation  would  secure  without  friction  or 
legal  enactment  its  due  proportion  of  the  money  of 
the  world.  We  are  not  now  so  far  remS^ed  from 
this  state  of  things  as  might  at  first  sight  be  sup- 

posed. 

f,    ,  The  French  plan  of  a  universal  coinage  was  devel- 

•rj^  j^Ly^  oped  at  an  international  monetary  conference  held 

^"^':*-^  in  Paris  during  the  Great  Exposition  of  1867.     This 

plan  proposes,  (1)  a  single  standard  exclusively  of 

gold  ;  (2)  coins  of  equal  weight  and  diameter ;  (3) 

of  equal  quality  nine  tenths  fine;  (4)  the  weight  of 

7,yy    ;cy;he  five  franc  gold  piece,  1612.9  milligrams,  to  be 

fu%-<^\  the  universal  unit;  (5)  the  multiples  of  this  unit  to 

''f,%t"   '''  be  decimal,  or  at  least  divisible  by  5;  (6)  the  coins 

of  each  nation  to  bear  the  names  and  emblems  pre- 

ferred  by  each,  but  to  be  legal  tender  in  all.    France, 

Belgium,  Switzerland,  Italy,  and  Greece,  numbering 
in  all  72,000,000  souls,  have  now  a  common  money 
based  on  the  French  franc.  It  is  claimed  that  no 
other  plan  requires  so  few  changes  and  so  little  ex- 
pense to  unify  the  money  of  the  world,  and  that  the 
nations  already  using  the  French  unit  have  n^ore 
coined  gold  than  the  aggregate  of  the 'coined  gold 
of  those  nations  asjied  to  conform  to  this  plan.i  On 
the  other  hand,  the  objections  to  it  are,  (1)  the  ugly 
fraction  in  the  unit  of  weight ;  (2)  England's  prefer- 
ence of  her  old  standard  of  {h  fine  to  tV  fine ;  (3) 
^^^  both  American  and  JBritish  gold  would  have  to  be 

"^^  1  Report  of  S.  B.  Ruggles  to  the  Department  of  State.     Mr.  Rugglea 

wras  a  delegate  to,  and  evidently  a  leading  mind  in,  the  conference. 


•  ON  MONEY.  267 

recoiiied ;  and  (4)  the  system  is  not  decimal  through- 
out, the  napoleon  of  20  francs  not  being  decimally 
related  to  the  franc. 

Mr.  E.  B.  Elliott  of  the  U.  S.  Treasury  Depart-t&^^^t^ //^ 
ment  has  proposed  another  plan  of  unification,  in 
which  all  the  coins  are  to  bear  simple  relations  to 
the  metrical  gram.  By  persuading  Great  Britain 
to  coin  -^js  fine,  by  reducing  the  weight  of  fine  gold 
in  our  dollar  from  1.5046  -|-  grams  to  1.5  grams,  by 
increasing  the  fine  gold  in  the  pound  sterling  from 
7.3223 -|- grams  to  7.5  grams,  and  by  increasing  the 
weight  of  the  napoleon  from  5.8064  -|-  grams  to  6 
grams  fine  gold,  their  weights,  both  fine  and  stand- 
ard, would  all  be  strictly  metrical,  and  bear  simple 
relations  to  each  other.  The  following  equivalents 
would  obtain,  namely,  4  pounds  =  20  dollars=:100  d''-' 
francs.  Each  of  these  would  weigh  30  grams  fine  f^^(^- 
gold,  or  33^  grams  standard  gold.  Also,  1  dollar  = 
5  francs  =  50  pence,  each  weighing  1\  grams  fine, 
or  If  grams  standard.  Also  1  pound  =  5  dollars, 
each  1^  grams  fine,  8^  grams  standard. 

In  the  mean  time  Germany  and  Austria  have  de--^c  ^ 
veloped  each  a  new  coinage  of  their  own,  and  have'^^  -v.-vx^. 
perhaps  thereby  postponed  the  exact  unification  of  .''i^-»^A'  //'  -^ 
the  money  of  the  commercial  world.    The  new  Gei-Zo  ?hv>-^'^ 
man  unit  is  the  mark  containing  100  pfennigs.     A 
kilogram  of  pure  gold  is  cut  into  279  of  the  new 
10-mark  pieces,  so  that  a  mark  is  equal  to  23.821 
cents  United  States  gold,  as  a  gram  equals  15.432  + 
grains  troy.     The  new  Austrian  florin  is  very  nearly 
48  cents  of  our  gold,  or  2  shillings  English  ;  since 
one  English  shilling  equals  24i§f  of  our  cents,  and 
an  English  penny  equals  2^V(j  cents. 


268 


ELEMENTS   OP   POLITICAL   ECONOMY. 


though 


the 


Now, 
paper   money  partly 


Bank  of  England  circulates  a 
based  on  government  credit, 
though  the  United  States  has  under  the  national 
banking  law  a  similar  paper  money,  and  though 
Germany  is  to  have  some  national  paper  in  connec- 
tion with  the  new  metallic  money  ;  yet,  every  pound 
,or  dollar  or  mark  of  this  paper  money  is  or  is  to 
be  redeemable  in  gold  and  silver;  and,  as  the  ratio 
of  paper  to  specie  in  Great  Britain  is  not  far  from 
j£45,000,000  to  £80,000,000,  as  a  still  smaller  ratio 
is  likely  to  prevail  in  Germany,  and  as  it  is  earnestly 
to  be  hoped  that  the  United  States  will  ultimately 
have  at  least  as  much  of  specie  as  of  paper  money, 
the  maintenance  of  such  paper  for  the  home  circula- 
tion may  or  may  not  be  sound  financial  policy,  but 
it  is  evident  that  it  cannot,  under  these  circum- 
stances, substantially  interfere  with  the  self-regu- 
lation of  the  metallic  money  of  the  world.  Never- 
theless, that  we  may  see  with  distinctness  the 
scope  and  efficiency  of  the  magnificent  natural 
law  which  distributes  the  precious  metals  over  the 
earth  in  accordance  with  the  business-wants  of 
each  nation,  let  us  suppose  that  there  were  no 
paper  money ;  that  all  the  nations  minted  their  met- 
als with  a  common  proportion  of  alloy;  and  that 
the  real  relative  value  of  the  two  were  ascertained 
by  law  in  the  countries  where  both  are  legal  tender, 
and  were  well  understood  also  in  the  other  coun- 
tries. In  this  case  there  would  be  no  motive  to 
debase  any  part  of  the  coinage  to  prevent  its  expor- 
tation, and  all  the  money  of  all  the  nations  would 
be  value-money  purely.  Now  then,  money  is  the 
medium  of  exchange,  and  is  wanted  where  the  ex- 


ON   MONEY.  269 

changes  are,  and  not  elsewhere,  and  goes  of  neces- 
sity under  freedom  whither  it  is  relatively  most 
wanted,  that  is  to  say,  whither  the  most  can  be 
obtained  for  it  in  exchange.  If  the  country  be  gold- 
bearing,  and  its  people  at  the  same  time  be  enter-* 
prising  in  the  production  of  all  sorts  of  services  for 
exchange  among  themselves,  they  will  retain  enough 
of  their  own  gold  to  mediate  their  own  exchanges, 
for  the  simple  reason  that  they  want  it,  and  have 
services  to  offer  in  exchange  for  it ;  and  if  they  have 
been  allowed  in  freedom  to  develop  their  own  pecu- 
liar advantages,  no  foreign  nation  can  outbid  them 
in  the  offers  they  are  able  to  make  for  a  sufficient 
quantity  of  this  gold.  If  foreigners  draw  away  the 
gold  from  them,  it  shows  that  the  home  people  have 
less  industry  and  less  skill  to  produce  those  things 
which  the  gold-producers  want.  The  home  people 
have  the  advantage  in  one  respect.  They  are  on  the 
spot.  There  is  less  expense  to  them  than  to  foreign- 
ers in  transporting  the  services  offered  in  exchange 
for  the  gold,  and  also  the  gold  received  in  return. 
If,  with  this  advantage,  foreigners  can  still  outbid 
them  in  offers  for  the  gold,  it  shows  that  they  need 
it  most  and  deserve  it  most,  since  they  have  had  the 
industry  and  the  skill  to  produce  that  which  is  pre- 
ferred by  the  miners  to  the  home  services  offered, 
and  have  also  overcome  an  additional  obstacle.  The 
gold  producer,  like  every  other  producer,  has  the 
right  to  get  the  most  he  can  for  his  service.  Who- 
ever can  offer  him  that  most  has  the  best  right  to 
the  gold.  Therefore  the  gold  goes  in  the  first  in- 
stance into  their  hands,  whether  natives  or  foreign- 
ers, who  offer  the  most  for  it  in  exchange.     If  the 


270  ELEMENTS  OF  POLITICAL  ECONOMY. 

people  of  the  gold-bearing  country  have  equal  natu- 
ral advantages  with  others  to  produce  those  things 
which  are  wanted  in  exchange  for  their  gold  by 
those  who  practically  work  the  mines,  and  then  fail 
to  get  the  gold  they  need,  the  blame  lies  nowhere 
except  on  their  lack  of  industry  and  skill.  Let  not 
such  people  think  to  find  any  shelter  behind  natural 
laws.  Natural  laws  are  justly  and  eternally  against 
them.  If,  however,  they  are  naturally  placed  at  a 
disadvantage  in  respect  to  those  specific  products  in 
demand  by  the  first  owners  of  the  gold,  they  are 
then  brought  into  the  same  category  with  non-gold- 
bearing  countries.  They  will  then  get  their  gold  at 
second  hand,  and  if  they  deserve  it,  will  be  just  as 
sure  to  get  it  as  if  they  retained  it  in  the  first  in- 
stance. Every  nation  has  natural  advantages  in 
some  sorts  of  products.  Just  so  soon  as  these  are 
properly  developed,  it  has  some  things  to  offer  to  the 
world  at  a  better  rate  than  anybody  else  can  offer 
them.  Thither,  and  to  buy  those  things,  will  gold 
flow,  if  not  directly  from  the  gold- producing  lands, 
then  indirectly  but  inevitably,  from  those  lands 
where  the  gold  at  present  is.  Under  our  supposi- 
tion, it  makes  no  difference  where  the  gold  came 
from,  or  what  nation  minted  it,  it  is  drawn  by  a 
natural  force  not  to  be  resisted  to  that  people, 
which,  by  offering  services  in  general  demand,  re- 
quires gold  to  mediate  the  exchange  of  those  ser- 
vices. Thus,  by  a  law  as  unerring  as  gravitation, 
the  precious  metals  make  the  circuit  of  the  earth, 
abiding  certainly  in  large  masses  within  all  the  com- 
mercial nations,  because  there  is  where  they  are  con- 
stantly wanted  and  cannot  be  spared,  but  passing 


ON  MONEY.  271 

ort  also  perpetually  in  smaller  masses  from  all  the 
groat  centres  of  business  towards  those  points  where 
their  purchasing-power  for  the  time  being  is  greater  i 
than  at  home.  The  one  only  impulse  thai  can  stir JjJ^,^  (im 
the  precious  metals  from  their  usual  haunts,  is  the-^^^  /j. 
belief  that  elsewhere  they  are  worth  more  in  ex- ^i,^^J!--^  « 
changes ;  and  hence,  just  as  soon  as  the  demand 
for  a  currency  is  fairly  met  in  any  country  by  the 
presence  of  gold  and  silver,  coin  ceases  to  flow 
thither  as  a  permanent  thing,  but  rather  ebbs  and 
flows  in  obedience  to  the  ever-shifting  exigencies  of 
trade.  The  nation  that  does  a  large  business  will 
require  a  large  stock  of  coin,  will  be  able  to  pay  for 
it,  and  will  inevitably  secure  it;  a  nation  with  fewer 
exchanges  to  make  will  less  need  the  instrument 
with  which  exchanges  are  made,  will  buy  and  keep 
a  less  quantity;  and  if,  in  the  chances  of  trade, 
more  comes  than  is  needed,  it  flows  off  at  once  to 
the  places  where  the  demand  for  it  is  stronger ;  and 
thus  the  proportionate  amount  due  to  the  commer- 
cial interests  of  every  nation  goes  thither  under  a 
natural  law,  and  abides  there  under  a  natural  law. 
Hence  the  general  purchasing-power  of  gold  and 
silver  tends  steadily  to  an  equality  the  world  over. 
If  it  be  appreciably  higher  in  one  nation  than  in 
the  others,  the  metals  are  drawn  toward  that  nation 
by  an  irresistible  attraction  till  the  equilibrium  is  re- 
stored. Add  to  this,  that  there  is  at  all  times  a  vast 
reservoir  of  plate  from  which  any  sudden  or  steady 
demand  for  currency  can  easily  be  supplied,  and  in- 
to which  any  fortuitous  or  steady  superfluity  can 
as  readily  be  drained,  and  the  reasons  are  apparent 
why  gold  and  silver  currencies  are  self-regulating  in 


(  4vJi  a^.v-'-r-     I  L- . 


*i72  ELEMENTS  OF  POLITICAL  ECONOMY. 

value  and  amount.  If,  on  the  other  hand,  a  cur- 
rency is  to  be  of  paper,  independent  of  gold  and 
silver,  there  is  no  self-regulation  about  it :  we  pass 
at  once  from  the  region  of  natural  laws  into  the 
region  of  statute  and  enactment ;  somebody  must 
take  upon  themselves  to  decide  how  much  of  this 
paper  there  shall  be,  —  a  power  which  could  not  be 
lodged  in  more  dangerous  hands  than  in  those  which 
thought  themselves  competent  to  exercise  it. 

(3.)  Because  they  are  conveniently  portable,  divis- 
ible, and  impressible.  Our  proposition  is,  that  gold 
tkoCh^,,^ ,  ^^^  silver  constitute  the  best  money;  and  in  proof 
*i»v/^«^p*iif-  of  this  we  have  already  demonstrated  the  steadiness 
c-..  ,  ..-^  ^^  their  value,  and  their  self-regulating  power;  inci- 
dental to  these  great  advantages  are  the  material 
qualities  of  these  metals,  by  which  they  are  admi- 
^ "  rably  fitted  to  be  the  money  of  the  nations.     Their 

weight  is  little  relatively  to  their  value.  A  thousand 
dollars  in  gold  are  not  indeed  carried  so  easily  as  a 
•M.fcAcU,  bill  of  exchange  or  a  bank-note;  and  expedients  are 
easily  adopted,  and  always  have  been  used,  by 
which  the  transfer  in  place  of  large  masses  of  coin 
is  for  the  most  part  obviated ;  and  our  proposition 
does  not  deprecate  at  all  the  use  of  the  economiz- 
ing expedients  of  commerce ;  but  for  the  money  of 
the  people,  for  the  currency  that  passes  from  hand 
to  hand  in  ordinary  exchanges,  we  maintain  that 
gold  and  silver  are  sufficiently  portable.  One  troy 
pound  of  English  sovereigns,  which  one  can  put  in 
a  glove-finger  and  carry  in  his  vest-pocket,  almost 
without  knowing  it,  is  worth  about  $230 ;  and  the 
experience  of  those  countries,  like  France  and  Ger- 
many at  present,  where  the  money  is  mostly  metallic, 


•X,— ijt- 


ON  MONEY.  273 

has  not  pronounced  it  onerous  on  account  of  its 
weight.  At  any  rate,  it  is  better  to  accept  all  the 
other  immense  advantages  of  gold  and  silver  money, 
together  with  a  little  inconvenience  as  to  weight,  if 
one  chooses  to  insist  on  that,  than  to  adopt  substi- 
tutes every  way  inferior  as  money,  except  that  they 
are  lighter  in  our  purses. 

Moreover,  gold  and  silver  differ  from  jewels,  and^^'T^^^ 
most  other  precious  things,  in  that  masses  of  them   '^^A- 
are  divisible,  without  any  loss  of  value,  into  pieces 
of  any  required   size.     The  aggregate  of  pieces  is 
worth  as  much  as  the  mass,  and  the  mass  as  much 
as  the  pieces.     For  currency  purposes  this  is  a  great 
advantage.     For  its   utmost   convenience,  business 
requires  a  considerable  variety  of  coins,  and  if  any -;^  77^  ^^ 
of  these  kinds  be  minted  in  quantity  in  excess  of-j.Ji^-o-vrjM^j 
the  demand,  nothing  more  is  required  than  to  remint^  <*-^H^r-< 
them  in  other  denominations,  and  their  whole  value  ^j^^**^*  / 
is  saved  to  the  currency  in   the   most   convei)ient 
form.     It  is  this  quality  which  enables  coins  to  flow 
into  plate   whenever  the   metal    in   them   becomes ^*^f*^^^^ 
more  valuable  in  the  form  of  plate,  and  plate  again,;  -    -5  j^  * 
to  flow  back  into  coins  whenever  the  metal  in  it  is/V  ^*^-***'*^^^ 
more  in  demand  as  coin. 

Lastly,  these  metals  are  capable  of  receiving  and^i/^^  L^4t»^ 
retaining  any  stamp  which  government  chooses  to 
impress  upon  them.  A  certain  proportion  of  alloy, 7^*  ^  ^^  ^ 
say  T^,  hardens  them  to  such  a  degree  that  they  ex- 
hibit with  sharp  distinctness  the  cut  of  the  die,  and 
permanently  retain  its  impress.  This  quality  of  the 
metals,  when  they  are  skilfully  coined  by  the  im- 
proved machinery  of  modern  times,  makes  the 
pieces  of  money  objects  of  beauty,  and  practically 

18 


274  ELEMKNTS  OF  POLITICAL  ECONOMY. 

indestructible  also,  since  the   perfect   circular  form, 
the  device  covering  the  whole  piece,  the  milled  and 
fluted  edges,  make  clipping  without  detection   im- 
possible, while  the  hardness  of  the  pieces  makes  the 
annual  loss  of  weight  by  abrasion   scarcely  appre- 
ciable.    The  Director  of  the  United  States  Mint,  in 
his  Report  for  1862,  gives  the  results  of  some  care- 
'*-!     -  ^        ful   and   comprehensive   experiments    made   at   the 
1.0*^  ^fi*^  mint  to   ascertain  the  yearly  loss  of  coins  by  the 
u^^^^ii'^^     ordinary  wear  and  tear  of  circulation.     These  re» 
o/iMZi^-^  /2?.#-  suits  are  exceedingly  interesting  and  important,  and 
y-^v  ».7>^     throw  to  the  winds  the  haphazard  conjectures  of  a 
'-^  ^^*^  '^  host  of  writers  on  either  side  of  the  Atlantic.     On 
.x/*»- ^ *>-.<"»'/•' ^^j.  gijygj.  coins,  taken    promiscuously,  the  average 

,^'  "'/  annual  loss  from  abrasion  was  ascertained  to  be 
j2u,m.-^,  one  part  in  630 ;  while  the  gold  coins  were  tested 
/y^^/^o  separately,  with  this  satisfactory  conclusion,  that  the 
half-eagle  averages  a  loss  per  annum  of  one  part  in 
3550,  the  double-eagle  one  in  9000 ;  and  a  cautious 
estimate  as  to  the  proportions  of  the  various  sizes 
of  coin  actually  in  circulation  in  the  United  States, 
made  of  the  two  metals,  leads  consequently  to  the 
conviction  that  the  average  yearly  waste  by  wear  on 
all  the  coins  does  not  exceed  one  part  in  2400.  The 
cost,  therefore,  of  maintaining  a  metallic  circulation 
is  by  no  means  so  great  as  it  has  been  usually  repre- 
sented. An  instrument  in  constant  use  that  requires 
only  TT^iViy  of  its  value  for  its  yearly  repair,  and  per- 
forms exceeding  well  the  most  delicate  and  impor- 
tant  functions,  is  a  cheap  and  durable  instrument. 

From  these  three  main  reasons,  we  conclude  that 
gold  and  silver  are  the  best  money. 


ON  MONEY.  275 

4.  An  inferior  money ^  so  long  as  it  circulates  at  all, 
invariably  drives  a  superior  money  out  of  the  circula-  ..,^l^nU  t 

tion.  T'^'i^  ^ 

This  is  a  fundamental  law  of  finance,  and   has  ]vrvJl-  ^ 


been  illustrated  over  and  over  again  in  every  age  and  ^• 
nation.  It  is  as  solid  as  the  substance  of  truth  canvT/lw^A^^""^ 
make  it,  though  it  looks  at  first  sight  like  a  paradox,  fj^^  .:^ 
We  naturally  think  that  what  is  excellent  tends 
rather  to  displace  what  is  inferior,  but  with  money 
the  exact  reverse  is  the  law,  and  the  perfect  coin  of 
full  weight,  instead  of  driving  out  the  light  and  the 
debased  pieces,  is  always  itself  driven  out  of  the 
circulation  by  them.  The  reason  is  obvious  from 
the  nature  of  money.  Money  is  merely  an  instru- 
ment of  exchange,  and  nobody  wants  it  except  to 
buy  with,  and  so  long  as  the  government  and  the 
community  treat  light  coin  and  full  coin  as  of  equal 
value,  receiving  them  indifferently  in  payment  of 
debts  and  of  taxes,  it  is  clear  that  nobody  will  give 
in  payment  of  debts  and  of  taxes  that  which  is  really 
worth  more  so  long  as  that  which  is  really  worth  less 
will  go  just  as  far.  The  inferior  pieces  will  abide  in 
a  market  where  they  will  fetch  just  as  much  as  the 
superior  pieces,  while  the  superior  pieces  will  take 
on  a  form  or  migrate  to  a  place  in  which  some 
advantage  can  be  gained  from  their  superiority. 
Thrown  into  the  crucible,  or  exported  in  commerce, 
this  superiority  immediately  manifests  itself;  and 
therefore  into  the  crucible  or  into  the  channels  of 
foreign  trade  it  might  be  confidently  predicted  before- 
hand that  such  money  would  be  thrown,  and  all  ex- 
perience testifies  with  one  voice  that  exactly  those 
are  the  destinations  of  such  money.     Mr.  Macaulay, 


276  ELEMENTS  OF  POLITICAL  ECONOMY. 

in  the  twenty-first  chapter  of  his  history,  mentions 
that  Aristophanes,  the  Greek  comic  poet,  in  the  fifth 
.^century  before  Christ,  was  the  first  writer  who  has 
p      noticed  the  fact  that  where  good  money  and  bad 
*"  *  '  ^  money  are  thrown  in  together  the  bad  money  drives 

out  the  good.  The  verses  of  the  poet  allude  to  the 
'  tendency  as  well  known,  and  refer  it  to  the  naturally 
depraved  taste  of  his  fellow-citizens,  like  that  which 
led  them  to  entrust  state  affairs  to  such  men  as 
Cleon,  whom  he  was  satirizing ;  but,  in  truth,  as  we 
have  seen,  the  tendency  results  from  the  common 
sense  of  men,  which  revolts  at  the  idea  of  using  a 
dearer  instrument  when  a  cheaper  one  will  answer 
just  the  same  purpose. 

Out  of  a  crowd  of  good  illustrations  of  this  law,  1 
shall  first  select  two  which  occurred  in  purely  metal- 
lic currencies.  The  Dutch  city  of  Amsterdam  be- 
came in  the  seventeenth  century  a  centre  of  trade 
for  all  Europe.  The  mercantile  honor  and  solid 
financial  ability  of  its  merchants  was  proverbial  all 
over  the  world;  and  yet  it  was  noticed,  about  the 
year  1609,  that  bills  of  exchange  on  Amsterdam 
.  -  p'were  always  below  par  in  other  countries.  The 
V'^'^  ""merchants  had  never  failed  to  meet  all  the  paper 
drawn  on  them  with  the  utmost  promptness,  and  the 
discount  on  this  paper  in  other  markets  was  a  won- 
der to  everybody.  On  search,  however,  it  was  found 
that  the  cause  of  all  this  was  in  the  currency  of  the 
city.  The  extensive  trade  of  Amsterdam  brought 
into,  it  large  quantities  of  chpt  and  worn  foreign  coin, 
which  circulated  in  the  currency  of  the  city,  and 
reduced  its  value  about  nine  per  cent,  below  that  of 
good  money  fresh  from  the  mint.     It  was  noticed, 


ON  MONEY.  277 

that  the  good  money  of  full  weight  which  the  mint 
of  Amsterdam  poured  into  the  circulation  by  wagon-  Xc  uj^  9.*-^^ 
loads,  did  not  stay  in  the  circulation;  that  very  fewf'*^  -w-^vu^ 
of  such  pieces  were  told  out  in  the  daily  exchanges ; 
it  was   ascertained   that  they  were   melted   up,   or 
carried  away  to  other  countries,  in  either  of  which 
cases  their  value  corresponded  to  the  value  due  tol^  »^^A'''. 
their  weight  and  fineness,  while  at  home  in  the  cur- 
rency their  value  only  corresponded  to  the  average 
value  of  the  depreciated  coins  which  constituted  the 
bulk  of  the  circulation.     Bills  of  exchange,  conse- 
quently,  drawn    on   Amsterdam   were   liable  to  be  ;i;url^.«^x^i 
paid  in  this  depreciated  coin,  and  the  exchange  was   <*.^i  ^  0*-^* 
against  the  city  even  more  than  the  coin  was  depre--*'*^- 
ciated;  because,  the  currency  in  such  an  uncertain  lt•XC<^Jl>]^f 
state  was  naturally  valued  abroad  even  below  what-p  /^^^^'t-^  '^ 
it  \s  as  really  worth.     To  meet  this  state  of  things,  /  ^ 

and  bring  up  its  exchanges  to  par,  the  city  of  Am-  .usx.  /?-«.*.wK. 
sterdam,  in  1609,  established  its  celebrated  bank. '^-'^-^^<1>*^ 
The  bank  received  the  dipt  and  worn  coin  which'  '^  ' 
was  circulating  in  the  city,  at  its  true  value  accord- 
ing to  present  weight  and  fineness,  and  after  deduct- 
ing a  small  charge  for  expense  of  recoining,  and 
another  small  charge  for  management,  gave  a  credit 
on  its  books  for  the  remainder.  This  credit  was 
called  bank-money;  it  represented,  guilder  for  guilder, 
money  actually  in  deposit,  and  money  too  exactly 
according  to  the  standard  of  the  mint.  The  city 
ordered  that  all  bills  drawn  on  Amsterdam  of  more 
than  six  hundred  guilders'  value,  should  be  paid  in 
bank-money ;  thus  every  considerable  merchant  was 
obliged  to  open  an  account  with  the  bank,  and  make 
his  deposit.    This  instantly  took  away  all  uncertainty 


278  ELEMENTS  OF  POLITICAL  ECONOMY. 

from  bills  of  exchange  drawn  on  Amsterdam.  They 
went  up  to  par  at  once  in  every  market  in  Europe. 
This  was  the  basis  of  the  simple  and  beneficent 
operations  of  the  Bank  of  Amsterdam,  an  institution 
which  enjoyed  unlimited  credit  in  the  commercial 
world  for  nearly  two  hundred  years.  The  conven- 
ience of  this  bank-money ;  its  unvarying  character;  its 
security  from  fire,  robbery,  and  other  accidents ;  the 
fact  that  the  city  was  bound  for  it ;  and  the  demand 
for  it  occasioned  by  the  fact  that  every  merchant 
must  have  some  of  it,  that  is,  must  keep  an  account 
with  the  bank,  in  order  to  .pay  his  foreign  bills  of 
exchange,  gave  the  certihcate  of  deposit,  or  the  bank- 
money,  a  constant  premium  of  about  five  per  cent, 
over  the  good  coin  of  full  weight  which  came  into 
circulation  without  difficulty  as  soon  as  the  poorer 
coins  were  drawn  into  the  bank  for  recoinage. 

At  the  close  of  the  same  century,  a  similar  series 
of  events  occurred  on  a  much  larger  scale  in  Eng- 
land.i  The  old  silver  coinage  of  England  was  by  a 
rude  process  introduced  into  that  country  by  artists 
from  Florence  as  early  as  the  thirteenth  century. 
The  pieces  were  shaped  and  stamped  by  the  hammer. 
They  contained  some  a  little  less  and  some  a  little 
more  than  the  due  amount  of  silver ;  few  of  them 
were  perfectly  circular ;  the  edges  were  neither  milled 
nor  fluted ;  the  image  of  the  sovereign  occupied  the 
centre  of  the  pieces,  and  the  superscription  ran  around 
the  edge,  but  not  so  near  it  as  that  the  letters  were 
necessarily  impaired  by  a  little  clipping.  Conse- 
quently it  was  easy  to  pare  off"  a  pennyworth  or  two 
t)f  silver  from  the  crowns,  half-crowns,  and  shillings, 

1  Macaulay's  History,  Chap.  21. 


(O-ut-t-V-     V^ 


ON  MONEY.  279 

and  then  pass  them  along.  It  became  a  profitable  |^^^  ]^^M^ 
branch  of  industry.  It  was  in  vain  that  Elizabeth!.^  ^M^Ja^ 
enacted  that  the  clipper  should  be  henceforth  liable 
to  the  penalties  of  high  treason.  About  the  time  of 
the  Restoration,  that  is,  about  1660,  it  was  noticed 
that  a  large  proportion  of  the  silver  coin  of  the 
realm  had  undergone  some  degree  of  mutilation-/^, 
At  that  time  a  new  process  of  coinage  was  brought 
in.  A  mill  worked  by  horses  fabricated  the  new 
coins  on  better  principles.  They  were  exactly  round, 
and  the  edges  were  inscribed  with  a  legend,  and  they 
were  all  of  just  and  equal  weight.  They  were 
thrown  out  into  the  circulation  to  pass  current  with 
the  hammered  money,  and  it  seems  to  have  been 
expected  that  they  would  soon  come  to  displace  it. 
But  they  did  not.  Both  were  received  at  first  with- 
out distinction  by  the  individual  traders  and  by  the 
public  tax-gatherers.  But  it  was  not  long  before  the 
milled  money  was  noticed  to  be  scarce.  One  hardly 
saw  a  piece  of  it  in  a  fortnight.  The  horses  at  the 
mint  were  all  the  time  tugging  away,  and  the  bags 
of  fresh  money  were  carried  continually  from  London 
Tower  to  London  town,  but  the  new  money  never- 
theless became  scarcer  every  day.  In  the  payments 
made  at  the  Treasury  not  one  piece  in  two  hundred 
was  milled  silver,  and  a  merchant  complained  that, 
being  paid  a  debt  of  thirty-five  pounds,  he  only  got 
one  half-crown  of  good  money.  Indeed,  the  money 
was  getting  perpetually  worse.  False  coiners  mul- 
tiplied, and  clippers  abounded  more  and  more.  The 
penalties  of  an  extreme  law  were  utterly  powerless 
to  restrain  the  mutilation  of  the  coins;  until,  at  length, 
public  opinion  decidedly  turned  against  the  promis- 


280  ELEMENTS  OF  POLITICAL  ECONOMY. 

cuous  hanging  of  clippers;  officers  were  reluctant  to 
arrest,  and  juries  reluctant  to  convict,  and  the  people 
sympathized  with  the  sufferers  as  only  guilty  of  a 
moderate  fault.  Thus  things  went  on  till  1695. 
The  lighter  the  old  coins  became,  the  scarcer  became 
the  new  ones;  for  who  would  pay  two  ounces  of 
silver  when  one  ounce  was  legal  tender?  The  new 
money  was  melted,  was  exported,  was  hoarded,  but 
circulate  it  would  not.  At  length  the  lightest  pieces 
began  to  be  refused  by  some  people,  and  other  peo- 
ple demanded  that  their  silver  should  be  paid  to  them 
by  weight  and  not  by  tale,  and  there  was  wrangling 
over  every  counter,  and  a  dispute  at  every  settlement, 
and  the  coin  was  really  so  diverse  in  its  value  that 
there  was  no  longer  any  measure  of  value  in  the 
kingdom  ;  business  was  in  utmost  confusion,  society 
was  by  the  ears,  poor  people  were  unmercifully 
fleeced,  and  shrewd  ones  grew  enormously  rich  ; 
and  the  Jacobites  secretly  exulted  in  the  hope  of 
being  able  to  avail  themselves  of  the  prevailing  dis- 
content to  overthrow  the  scarcely  established  revolu- 
tionary government  of  William  and  Mary ;  when, 
by  the  joint  counsels  of  two  such  philosophers  as 
Locke  and  Newton,  and  two  such  statesmen  as 
Somers  and  Montague,  the  government  took  the 
bold  resolution  of  recoining  all  the  silver  of  the  king- 
dom. An  early  day  was  fixed  by  Parliament,  after 
which  no  clipped  money  could  pass  except  in  pay- 
ments to  government,  and  a  later  day  after  which  it 
could  not  pass  at  all.  It  was  wisely  determined  that 
the  loss  on  the  clipped  money  should  be  borne  by  the 
whole  public,  and  not  by  the  present  holders  of  it ; 
and  it  was  estimated  that  .£1,200,000  would  be  re 


ON  MONEY.  281 

quired  to  make  up  the  currency  to  the  old  standard 
of  weight  and  fineness ;  and  this  sum  the  Bank  of 
England,  just  established,  was  willing  to  advance 
on  the  security  of  some  new  and  good  tax ;  and  the 
window-tax  was  passed  to  raise  the  money ;  the  old 
coins  were  rapidly  drawn  in,  melted  up,  and  re- 
coined,  and  thereafter  there  was  no  difficulty  in 
keeping  the  circulation  full  of  milled  pieces  of  full 
weight  + 

In  mixed  currencies,  the  financial  law  we  are  now  ?V  (4^ ' 
treating  has  a  similar,  but  if  possible  a  more  disas-  '    &v,''~^«^v 
trous  operation.     If  the  paper  in  curculation  be  not 
nominally  redeemable  in    gold  and   silver,  then  asf^^^-"-^*' K 
soon  as  it  depreciates  below  the  value  of  gold  and^^;^*'^  "^-^  V 
silver,  as  such  paper  has  never  yet  failed  to  depreci- 
ate in  a  short  time,  it  drives  the  metals  completely 
out  of  the  circulation,  and  keeps  them  out  just  so 
long  as  itself  circulates,  or  until  the  quantity  of  such  ^  j^^^  ^u^.^A^ 
paper  is   so  reduced  and  its  character  so  improved  ^,,^^  z^J^ 
that  it  rises  again  to  a  par  value  with  the  metals,  in 
which  case,  though  it  has  never  to  my  knowledge 
actually  occurred,  the  metals  would  come  back  into 
the  currency  alongside  of  the  paper.     The  sudden- 
ness and  the  thoroughness  with  which  the  gold  and 
silver  will  abandon  a  currency  of  which  a  depreci- 
ated, irredeemable  paper  forms  a  part,  was  illustrated         

on  a  large  scale  in  this  country  in  1862.  A  gigantic  '■■'-^^-^^^'^'^  ■ 
civil  war  had  been  in  progress  in  the  nation  for  a 
year ;  difficulties  and  disasters  had  thickened  around 
the  path  of  the  government ;  its  financial  embarrass- 
ments were  of  the  most  formidable  kind ;  and  yet, 
until  April  of  that  year,  1862,  the  paper  money  of  the 
loyal  States,  which  consisted  of  about  $140,000,000 


tv<-*~r- 


I  282  ELEMENTS  OF  POLITICAL  ECONOMY. 

of  bills  of  the  various  State  banks,  had  not  much 
depreciated  as  compared  with  coin.  In  January, 
indeed,  when  the  national  government  had  added  to 
this  mass  of  paper  about  $30,000,000  of  demand- 
notes  gold  was  at  a  premium  of  five  per  cent. ;  but 
as  soon  as  the  law  authorizing  the  issue  of  national 
p4*A4^M».  -K  s^4^..  legal-tender  notes  was  passed,  the  government  drew 
in  the  demand-notes,  and  for  a  little  interval  the 
paper  currency  was  reduced  to  about  $140,000,000, 
and  on  the  first  day  of  April,  when  the  legal-tenders 
^^^  .  ,    were  ready  for  circulation   but  not  yet  issued,  the 

j^     ■  ,■  coin  bore  a  premium  of  about  one  per  cent.     It  had 

not  yet  in  any  sense  abandoned  the  circulation.  The 
State  banks  had  all  suspended  specie  payments  on 
the  last  day  of  the  preceding  year,  but  had  not  yet 
much  expanded  their  usual  circulation.  And  now 
it  is  to  be  noticed  that  the  steady  depreciation  of  the 
papercurrency  of  the  country,  both  state  and  national, 
commenced  at  the  very  time  when  the  national  legal- 
tender  notes  were  thrown  into  the  circulation.  All 
the  paper  was  now  irredeemable,  and  its  volume  was 
now  expanded,  and  the  depreciation  began  ;  it  was 
liable  to  still  further  expansion,  both  from  the  absence 
of  restraint  on  the  circulation  of  the  State  banks  and 
from  the  urgent  necessities  of  government  leading  to 
the  issue  of  more  legal-tenders,  and  the  depreciation 
continued.  In  May  gold  bore  three  per  cent.,  June 
nine  per  cent.,  July  fifteen  per  cent,  September  twen- 
ty-one per  cent,  October  twenty-nine  per  cent,  and 
December  thirty-two  per  cent  Step  by  step,  as  the 
volume  of  the  currency  increased,  did  its  value  de- 
crease as  compared  with  gold  ;  and  what  is  more  to 
the  present  purpose,  no  sooner  did  the  depreciation 


ON  MONEY.  283 

become  sensible,  than  the  scarcity  of  coin  became 
sensible  also,  and  in  a  very  few  weeks'  time  the 
currency  was  swept  utterly  bare  of  metallic  money. 
The  gold  went  first,  and  then  the  silver ;  and  a  little  / 

later  even  the  copper  cents  followed  the  example  ;  '^^^-'-"^  \ 
and  the  government  was  obliged  to  authorize  the 
use  of  its  postage  and  revenue  stamps  for  small 
change  ;  and,  until  it  was  prohibited  by  law,  cities, 
corporations,  and  individuals  issued  shin  plasters  and 
metal  tokens  of  various  kinds  to  take  the  place  of 
the  small  coins.  This  present  writing  is  near  the 
vernal  equinox  of  1875,  but  with  the  exception  of  a 
few  copper  pieces,  the  coins  have  not  yet  returned  to 
the  circulation,  for  the  sufficient  reason  that  the  paper- 
money  is  still  depreciated  as  compared  with  them. 
The  war  is  over,  peace  has  returned,  business  is  re- 
viving, and  a  career  of  unprecedented  prosperity  is 
opening  up  before  the  country,  but  the  coins  have 
not  come  back,  and,  under  the  commonest  principles 
of  human  nature,  cannot  come  back,  until  the  paper 
dollar  of  the  country  is  equal  in  purchasing-power  to 
the  gold  dollar,  and  is  redeemable  in  that.  Since 
April  1st,  1862,  the  paper  money  has  varied  from 
less  than  one  to  sixty-five  per  cent,  below  par,  and 
is  to-day  eleven   per    cent,  below  par. 

So  long  as  the  paper  money  of  a  country  is  nomi-^  i^^^^^^j^j^ 
nally  redeemable  in  gold  and  silver,  the  operation  of  ^j^^ -^  a^ 
the  law  we  have  in  hand  is  somewhat  peculiar.     In  h^S-*^-     ' 
times  of  ordinary  confidence  and  prosperity  the  paper 
and   the   coin   circulate   indifferently   together,    and 
an  undue  increase  of  the  paper  beyond  the  just  de-jj^       a^\ 
mands  of  business  does  not  indicate  itself  in  a  pre-  a^^tju  ^  j 
mium  on  the  coin,  but  each  part  of  the  whole  cur*^*^^*-<^*. 


ff-'^ 


284  ELEMENTS  OF  POLITICAL  ECONOMY. 

rency  suffers  a  diminution  in  value,  which  is  of  course 
indicated  in  a  general  rise  of  prices.     There  is  noth- 
ing anomalous  in  this,  for  increase  of  supply,  other 
things  as  before,  always  lowers  the  value  of  any- 
thing;   and  the  direct  interest  of  the   parties  who 
furnish  the  paper  leads  them  to  increase  their  circu- 
lation as   much   as  they   fairly,   and   sometimes   as 
^  ^      much  as  they  unfairly,  can.     But  a  market  in  which 
»^^^^     prices  are  high  and  gold  is  still  circulating  is  a  good 
T^   n  market  to  sell  in,  and  increased  importations  never 

fail  to  accompany  a  rise  of  prices  caused  by  the  de- 
precialion  of  a  mixed  currency.  In  the  home  market 
the  paper  is  still  as  good  as  gold,  but  to  pay  the 
balances  in  a  foreign  trade  it  is  good  for  nothing. 
r..  <w  4^^  The  natural  superiority  of  the  gold  to  paper  appears 
J  Joi.'v^'/^  as  soon  as  a  payment  is  to  be  made  abroad.  In 
-  ■  '^  •  obedience  to  this  impulse  gold  naturally  and  inevita- 
bly goes  abroad;  and  it  has  repeatedly  gone  abroad 
under  these  circumstances  from  the  United  States  to 
such  an  extent  that  the  parties  who  furnished  the 
paper,  that  is  to  say,  the  banks,  could  no  longer  re- 
deem their  paper  in  coin,  but  were  obliged  to  suspend 
specie  payments,  which  is  a  euphonious  circumlocu- 
tion to  express  going  into  temporary  or  permanent 
bankruptcy.  In  this  case  also,  though  less  directly, 
the  inferior  money  pushes  the  superior  out  of  circu- 
lation. I  have  no  hesitation  in  calling  the  paper  the 
inferior  money,  both  for  other  potent  reasons  soon  to 
be  specified,  and  because  at  any  rate  it  is  powerless 
in  international  exchanges.  There  is  believed  to  be 
nothing  in  the  monetary  history  of  the  United  States, 
as  there  is  certainly  nothing  in  the  known  principles 
of  human  nature,  which  does  not  abundantly  con- 


ON  MONEY.  285 

firm  as  a  universal  truth  the  proposition  in   hand, 
namely,  that  worse  and  better  money  being  in  the^^  ^ 

currency  together,  the  worse  will   expel  the  better      •    ^ 
sooner  or  later ;    sometimes  into  hoards,  sometimes 
into  the  melting-pot,  and  sometimes  out  of  the  coun- 
try. 

5.  A  paper  money  is  only  tolerable  when  it  is  actw  |i  i.  j  _. 
ally  and  instantly  convertible  on  demand  into  gold  ana  ^j^j^;^^  -^  «^ 
silver.  y^,^^&-^^  i^Jj^  »aj 

I  feel  no  hesitation  in  using  the  term  paper-money 
although  many  high  authorities  will  not  concede  that  ^ 
any  form  of  paper  can  be  money  at  all.     They  make    'T^^ 
a  distinction   between    currency   and    money.     The 
discussions  in  this  chapter  thus  far  have  been  pur- 
posely made  so  general  as  that  the  principles  will  ap- 
ply to  a  money  of  paper  as  well  as  to  a  money  of  coin. 
Any  form  of  value  that  circulates  generally  among  all  c.»^yj^>^xW 
classes  of  people  as  a  medium  in  their  exchanges  may  •'V''^^"*^^ 
be  allowed  to  be  called  money.     The  essential  char- 
acteristic of  money  is  its  possession  of  ^generalized    «  >,  vUc^^c  o 
purchasing  power.     For  a  reason  soon  to  be  given,  ^^^'*'''^^*  ^/ 
gold  and  silver  in  any  form  have  a  more  general  pur- 
chasing power  throughout  the  world  than  any  form 
of   paper  can   have;    and   yet    the  paper   that   the 
masses  of  the  people  accept  as  a  medium  in  any 
country,  may  be  regarded  as  money  in  that  country..'  ^ 
Checks,  drafts,  bills  of  exchange,  and  so  on,  are  not ;  .^^ 
money  under  the  definition.     This  is  a  distinction  ^^^^-*^^- 
recognized  in  common  language,  and  science  has  no 
motive  to  disturb  it.     The  signification  of  the  term 
money  merely  marks  the  fact  of  a  general  circula- 
tion, and  determines  nothing  in  respect  to  the  nature 
~-~or  usefulness  of  a  particular   medium.      The   word 


286  ELEMENTS  OP   POLITICAL  ECONOMY. 

money  is  derived  from  the  Latin  moneta,  the  mint  or 
place  where  money  was  coined.  The  mint  of  Rome 
was  a  building  on  the  Capitoline,  and  attached  to 
the  temple  of  Juno  Moneta,  as  the  jsrarium  was  to 
the  temple  of  Saturn.  The  epithet  of  the  goddess 
passed  over  first  to  the  mint,  and  then  to  that  which 
was  coined  there. 

If   I  had  the  making  of  a  new  nomenclature,  I 

'^♦f-*-^^^^ ♦^^^  would  indeed  propose  that  the  term  money  should 
be  used  as  strictly  synonymous  with  coin  ;  that  the 
term  currency  should  mean  exclusively  what  it  now 

^^i*^^'  means  generally,  namely^  paper-money  ;  and  that  the 

term  current  funds,  or  cash,  should  exclusively  denote 
checks  and  other  forms  of  credit- obligation  payable 
on  demand.  But  the  term  Money  has  already  se- 
cured for  itself  a  wider  signification  than  that,  and 
ir^Co    ™^y  ^®  accurately  defined  as  that  value  which  law, 

'"^^^T^  .  ^^  ^sage  equivalent  to  law,  compels  a  creditor  to  take 
in  payment  of  a  debt.  The  term  Currency  is  some- 
..^  r^vvvM^.*  times  used  as  synonymous  with  money  in  the  sense 
as  now  defined,  sometimes  as  including  both  money 
and  those  instruments  of  credit  which  pass  from 
hand  to  hand  by  indorsement  or  mere  delivery,  and 
sometimes  in  the  restricted  sense  already  noticed,  as 
synonymous  with  paper-money.  The  term  Circula- 
tion is  also  loosely  used  by  some  as  equivalent  to 
currency  in  all  three  of  its  meanings  as  above  given. 
The  term  Cash  scarcely  has  any  recognized  com- 
mercial meaning,  except  as  the  Chinese  money  of 
account,  and  is  coming  to  be  used  rather  as  an  ad- 
jective in  the  sense  of  ''immediately  available,"  as 
in  the  expressions,  «  cash  funds  »  and  «  cash  gold." 


I 


ON  MONEY.  287 

The   obstacles   in  the  way  of  a  permanent  and 
strictly  scientific  nomenclature  at  this  point  of  our 
science  arise  partly  from  the  nature  of  money,  and 
partly  from  the  power  of  governments  in  relation  to 
legal-tender.     Money  is  a  medium  of  exchange,  and 
different  things  with  varying  qualities  may  becomel^tLj}^  ^  ^ o^ 
and  have  often  become  this  medium,  and  though  I<>^  •w^^U.-x^^ 
have   demonstrated  that  i?old  and  silver  make  the'^^Tl''^ '  *T! 
best  money,  yet  most  nations  use  paper-money  more^j^t      ' 
or  less,  and    hence    one  difficulty   in  the  way  of  a 
sharp  and  universal  nomenclature  ;  and  moreover,  a 
function  of  government  touches  our  science  at  this 
point,  and  a  variable  use  of  this  authority,  past  and 
present,  has  made  it  still  more  difficult  to  construct 
and  maintain  a  fixed  and  scientific  language  in  rela- 
tion to  money.     Governments  have  no  power  at  all  f^^^^^j^  ^  a^ 
to  create  value,  except  as   they  have   authority  in j,^,.,^,„.».vuu>J- 1!^ 
their  organic  capacity  to  make  contracts  ;  but  they  o^ i\.jLiJ^iso  /^A^ 
have  always  claimed  and  exercised  the  right  of  de- 
claring what  shall  be  legal-tender  for  debts  within 
their  own  jurisdiction  ;  most  of  them  make  nothing 
but  gold   and   silver  legal-tender;    but   the   United 
States  has   made   paper  a   legal-tender   for  twelve 
years  past,  and  has  thus  exercised  control  not  indeed 
over  values  but  over  prices.     I  cannot   refuse  the 
courtesy  of  the  term  money  to  a  medium  which  my 
country,  however  unwisely,  makes  a  legal-tender  for 
debts  ;  and  while  acknowledging  that  the  nomencla- 
ture  is  unsatisfactory  for  the   radical  reasons  just 
given,  I  shall  try  to  make  such  distinctions  and  to 
use  terms  with  such  precision  as  shall  both  convey  o?>»vv*^  Vt- 
my  meaning  and  clear  up  some  confusions.     I  shall 
use  the  terms  coin  money,  paper  money ^  currency,  as 

\ 


ttnc 


'*-r'    %U^ 


288  ELEMENTS   OF  POLITICAL  ECONOMY. 

including  both  of  these,  cash  funds,  as  meaning  checks 
and  other  paper  available  on  demand,  and  credit,  as 
including  all  forms  of  future  obligations  to  pay. 

There  is  a  distinction  of  the  utmost  importance 
between  coin  money  and  paper  money.  Coin  money 
is  the  definite  thing,  which  paper  money  promises  to 
pay  to  bearer.  What  is  a  dollar  ?  A  dollar  is  25| 
grains  of  a  metal  compound,  of  which  nine  parts  are 
pure  gold  and  one  part  is  a  hardening  alloy.  It  is  a 
definite  quantity  of  a  definite  thing.  Government  is 
competent,  if  it  pleases,  to  alter  the  quantity  of  gold 
that  shall  constitute  a  dollar;  but  it  is  not  practically 
competent  to  make  a  dollar  out  of  anything  else 
than  gold.  Our  government  gave  up  long  ago  the 
attempt  to  make  standard  dollars  of  silver.  After 
every  change  in  the  mint  laws,  a  dollar  is,  and  will 
remain,  a  definite  quantity  of  gold  alloyed.  What 
is  a  dollar  bill  ?  It  is  a  promise  of  the  issuer  to  pay 
to  bearer  this  definite  quantity  of  alloyed  gold. 
There  is  no  mystery  here.  A  dollar  is  a  tangible 
commodity.  A  dollar  bill  is  a  promise  to  give  this 
commodity  to  bearer.  Paper  money,  then,  always 
has  in  it  the  element  of  credit,  while  the  other  has 
in  it  no  element  of  credit  at  all.  A  gold  dollar  is 
not  a  sign  of  anything,  it  is  not  the  represen- 
tative of  anything ;  it  stands  in  its  own  right, 
just  as  a  bushel  of  wheat  does;  it  is  true  that 
its  only  use  as  money  is  to  purchase  other  things, 
but  its  purchasing-power  is  within  a  trifle  as  great 
whether  it  be  in  the  form  of  money  or  bullion  ;  and 
therefore  a  service  that  is  paid  for  in  specie  closes 
up  the  transaction  completely,  the  exchange  is  con- 
summated, there  is  no  element  of  delay,  of  promise. 


ON  MONEY.  289 

of  credit  in  such  an  exchange.  It  is  just  as  when 
the  miller  renders  a  bushel  of  corn  to  his  neighbor, 
and  that  neighbor  renders  him  a  day's  labor  in  re- 
turn. In  both  cases,  there  is  an  end.  But  paper 
money  is  credit-money.  It  may  be  more  convenient 
than  coin  money ;  its  value,  that  is  to  say,  its  pur- 
chasing-power, may  be  equal  to  that  of  coin  money ; 
it  may  even  in  some  circumstances  bear  a  premium 
over  coin  money  ;  but  all  this  does  not  alter  the  fact 
that  there  is  in  it  an  unlupky  element,  an  unstable 
element,  an  element  which,  as  men  are,  is  liable  to 
some  suspicion,  the  element,  namely,  of  a  present 
promise  to  be  fulfilled  in  future.  Paper  money  walks 
by  faith,  and  not  by  sight.  It  is  the  sign,  and  not  the 
thing  signified.  It  is  the  representative  of  something, 
and  not  that  something  itself.  It  is  a  promise  to 
pay,  and  not  the  pay  itself.  It  is  a  credit,  and  not  a 
quittance.  And  what  makes  this  very  certain  is,  that 
all  paper  money  knows  it  to  be  true  about  itself.  It 
bears  this  truth  stamped  on  its  very  face.  It  does  not 
even  profess  to  stand  on  its  own  bottom,  but  leans 
consciously  and  conspicuously  on  some  solid  support. 
The  French  assignats  promised  to  redeem  themselves /J.,^^^.o  ^^ 
in  land;  the  continental  bills  of  the  old  American  .-  '  .  ,  .m. 
Congress  were  all  to  be  paid  in  Spanish  milled  dol- 
lars ;  the  bills  of  the  Bank  of  England  profess  to  be 
and  are,  redeemable  in  gold  and  silver;  the  present 
irredeemable  legal-tender  notes  of  the  United  States 
and  the  new  national  bank  bills,  are  all  in  terms 
promises  to  pay  to  bearer  so  many  legal  dollars  of 
the  United  States,  that  is,  so  many  times  25^  grains 
of  gold  standard  fine.  These  promises  have  been 
long  dishonored. 

19 


i  --? 


290  ELEMENTS  OF  POLITICAL  ECONOMY. 

So  long  as  coin  money  in  considerable  quantities 
circulates  as  a  medium,  either  alone  or  in  connection 
V  with  paper  money,  and  is  the  sole  legal-tender  for 
t^*„i^  "*  ^  debts,  the  denominations  of  value  will  remain  com- 
paratively steady.  If  there  be  paper  money,  it  is 
convertible  at  will  into  coin  money,  and  under  these 
circumstances  the  thing-dollar  governs  the  denomina- 
tion-dollar. It  is  of  the  utmost  consequence  that 
this  should  always  be  so  ;  because  in  all  operations 
in  credit,  except  in  paper  money  and  in  what  are 
distinctively  credit  dealings  in  gold,  what  is  thought 
of,  what  is  promised,  what  is  probably  received,  is 
something  measured  by  the  denomination-dollar,  that 
is  to  say,  dollar"* s-worth.  We  have  already  seen  that 
a  vast  number  of  exchanges  are  mediated  by  credit, 
and  not  by  money,  but  all  these  exchanges  proceed 
on  the  basis  of  doUar's-worth,  or  denomination-dol- 
lars, and  could  not  take  place  without  them  ;  and 
these,  in  order  to  be  useful  as  measures,  must  be  de- 
termined by  the  use  of  coin  money.  The  moment 
coin  money  is  dispensed  with,  and  so-called  paper 
dollars  inconvertible  into  coin  take  its  place,  not 
only  are  all  exchanges  mediated  by  this  money  af- 
fected, but  also  all  exchanges  mediated  by  credit, 
^-•'*-  since  the  current  dollar,  whatever  it  is,  determines 
the  denomination-dollar.  But  there  is  no  longer  any 
standard.  The  measure  of  value  has  itself  become 
immeasurable.  Hence,  the  immense  and  irreparable 
mischiefs  of  any  abandonment  of  coin  as  the  cur- 
rent money.  Such  abandonment  involves  a  variable 
and  non-calculable  denomination-dollar,  which  must 
be  used  in  all  business,  whether  the  money  that 
gives  birth  to  it  be  used  or  not.     This  is  the  second 


Ctf.> 


ON  MONEY.  291 

distinction  between  coin  money  and  paper  rooney^^y^Tl^^ 
inconvertible  —  the  first  furnishes  a  stable  measure.^  ^Iw^vCJ^;  c 
for  all  exchanges,  the  second  for  none.  t^  yd^'tU^'^ 

We  see,  then,  precisely,  the  nature  of  paper  moneyiZw  ^^**^^^^^  ^ 
It  is  made  up  of  promises  made  by  somebody  to  pay^^^j^^^ttc  t^'  -i 
to  somebody  else  a  definite  weight  of  coined  metal.''!*'^  - 
All  civilized  countries  now  make  a  certain  weight  of 
gold  or  silver  bullion  their  acknowledged  standard 
of  value;  and,  accordingly,  paper  money  can   only 
be  based  upon  specie,  since  specie  is  the  only  thing 
that  can  be  meant,  when  the  promise   is   to   pay 
pounds,  dollars,  gulden,  francs.     Specie  is  indeed  a 
commodity,  like  other  commodities,  but  then  it  is 
the  only  commodity  that  is  the  accepted  medium  of 
exchange  in  civilized  countries;    and  therefore,  all 
attempts  to  base  a  paper  money  upon  land,  wheat, 
cotton,  mercantile  bills,  or  any  other  valuable  thing, 
involve  a  direct  contradiction  in  terms.     Our  propo- 
sition is,  that  paper  money  is  only  tolerable  when  it  —p 
is  instantly  convertible  into  coin  ;  which  is  the  samef^]j^  a.jUv*** 
as  to  say,  that  a  promise  is  only  good  when  it  is  kept^iL^^x^' 
An  inconvertible  paper  money  is  only  another  name 
for  a  promise  unfulfilled ;  and  no  intelligent  person 
will  ever  wonder  that  unfulfilled  promises  to  pay  in- 
variably become  less  valuable  than  that  which  they 
promise  to   pay.     This  is  the  simple  secret  of  the 
inevitable  depreciation  of  all  inconvertible  money,  as 
soon  as  the    amount   of  it   passes   a  certain  limit. 
Even  a  convertible  money,  if,  by  any  expedients,  the 
amount  of  it,  together  with  the  coin  in  circulation, 
become  greater  than  the  volume  of  coin  alone  would 
be  then  and  there,  will  diminish  in  value,  not  indeed 
as  compared  with  specie,  but  as  compared  with  com- 


292  ELEMENTS  OF  POLITICAL  ECONOMY. 

modities,  that  is,  general  prices  will  rise.  All  the 
principles  of  this  whole  discussion  hinge  on  the  fun- 
damental truth,  that  money  is  a  medium  of  exchange. 
Because  it  is  a  medium^  only  a  certain  amount  of 
it  is  ever  needed  at  any  time  to  do  the  healthy  busi- 
ness of  any  country.  This  limit  of  quantity  not 
being  overpassed,  paper  promises  to  pay,  provided 
they  are  only  kept,  will  constitute  a  tolerable  money. 
That  this  limit  of  quantity  is  apt  to  be  overpassed, 
whenever  paper  money  is  used,  whether  it  be  incon- 
vertible or  nominally  convertible;  and  also,  that  a 
paper  money  can  never  be  successfully  based  on 
anything  but  gold  and  silver,  the  subjoined  histori- 
cal examples  will  abundantly  confirm. 
v^^- ^  John  Law  was  born  in  Edinburgh,  in  1671,  and 

'  died  in  Venice,  in  1729.     Son  of  a  goldsmith,  he 

received  an  excellent  education,  and  early  manifested 
an  acute  intellect  and  a  talent  for  finance,  but  was 
also  notorious  as  a  gambler  and  debauchee.  He 
was  the  first  to  give  scientific  form  and  color  to  the 
theory  (a  theory  that  is  still  working  in  many  minds) 
that  money  represents  commodities,  and  may  be 
based  upon  their  value.  He  published  this  theory 
-i^v^c  ^..  in  a  tract,  in  1705;  but  endeavored  in  vain  to  per- 
H*^$^  suade  the  government  of  Scotland  to  found  a  bank 
upon  his  principles.  He  then  carried  his  scheme  to 
Paris,  and  was  again  repulsed ;  and  after  a  residence 
in  many  cities,  in  which  he  gambled  successfully, 
and  talked  finance  to  princes  and  statesmen  fasci- 
natingly, he  returned  to  Paris  in  1715,  with  his  ill- 
gotten  fortune,  gained  the  ear  of  the  Eegent  Duke 
of  Orleans,  presented  to  him  a  memorial  containing 
many  sound  principles  of  monetary  science  combined 


ON  MONEY.  293 

with  the  fundamental  vice  of  his  system,  and  was 
allowed  by  him  the  next  year  to  found  a  bank  em- 
bodying to  a  certain  extent  the  new  idea.  The  idea 
may  be  well  expressed  in  Law^s  own  words: — '-'•Any  io^  t^<^ 
goods  that  have  the  qualities  necessary  in  money ^  lu^^^r^^  ''. 
may  be  made  money  equal  to  their  value.  Five  ounces 
of  gold  is  equal  in  value  to  X20,  and  may  be  made 
money  to  that  value;  an  acre  of  land  is  equal  to  £20, 
and  may  be  made  money  equal  to  that  value,  for  it  has 
all  the  qualities  necessary  in  moneyP     For  a  couple  _ 

of  years,  or  so,   Law^s    bank    surpassed  all   hopes.  ^^^  ^**wA,*^ 
Based  on  specie  and  on  state  debts,  it  paid  its  notes '^!^r^*r^^ 
promptly  in  coin,  and  these  for  a  time  even  bore  a 
premium  over  coin.     Law  had  touched  a  spring  till 
then  but  little  known  in  France,  the  potent  spring  of  ^^t^*^*"  *-'*^ 
Credit.     But  his  whole  thought,  meditated  on  for  T     S"^^ 
years,  could  not  be  expressed  through  a  private  bank. 
The  State  should  be  a  banker ;  it  should  collect  all 
its  revenues  into   a  central    bank,  and    attract   the  , 

money  of  individuals  to  it  as  deposits;  besides,  the  I*" 
State   has    public   property   of   vast   value,   on   the  '""^  /s*^**^^ 
strength  of  which  paper  money  can  be  emitted  and 
made  legal  tender;  and  thus  the  State,  instead  of 
borrowing,  should  lend  to  all  on  easy  terms,  and  the 
profits  thus  accruing  would  lessen  or  abolish  taxes. 
Nor  was  this  all.     The  State  should  also  be  a  mer- 
chant;  the  w^hole  nation  should  form  a  commercial  ^•<«/ ''v-fKJ  4 
company,  a  body  of  traders,  whose  common  treasury ''-'^t'/^icv^rj; 
should  be  the  State  bank.    Commerce  by  individuals 
creates  great  wealth ;  why  should  not  the  organized 
commerce  of  a  State  make   everybody  rich  ?     The 
discounts  of  the  bank,  and  the  profits  of  the  trade, 
would  surely  provide  for  the  public  service  without 


.     294  ELEMENTS  OF   POLITICAL  ECONOMY. 


taxation.  These  vast  ideas  were  actually  carried 
out.  Law's  bank  became  the  Royal  Bank,  issuing 
a  paper  money  guaranteed  by  the  State  and  resting 
back  upon  the  value  of  all  national  property.  The 
money  was  receivable  in  taxes,  nominally  redeem- 
able in  coin,  and  made  a  legal  tender.  It  actually 
bore  at  one  time  five  and  ten  per  cent,  premium  over 
gold  and  silver.  People  were  anxious  to  exchange 
their  coin  for  notes.  Meanwhile  a  commercial  com- 
pany was  formed  in  connection  with  the  bank,  to 
which  the  State  ceded  at  first  the  monopoly  of  the 
commerce  of  Louisiana  and  of  the  Canada  beaver 
trade  for  twenty-five  years,  and  the  soil  of  Louisiana 
forever ;  under  the  auspices  of  which  New  Orleans 
was  founded,  and  named  from  the  Regent,  the  patron 
of  the  grand  system ;  and  in  succession,  the  monop- 
oly of  tobaccos,  the  rights  of  the  Senegal  Company, 
of  the  East  India  Company,  of  the  China  Company, 
and  of  the  Barbary  Company ;  until,  having  almost 
all  the  commerce  of  France  outside  of  Europe  in 
its  hands,  it  entitled  itself  the  Company  of  the 
Indies.  Its  shares  rose  from  a  par  value  of  500 
francs,  to  10,000  francs,  more  than  forty  times  their 
value  in  specie  at  their  first  emission.  To  support 
such  speculations,  which  completely  turned  the  heads 
of  all  classes  of  the  people,  the  amount  of  paper 
money  reached  at  last  the  sum  of  3,071,000,000 
francs,  833,000,000  more  than  had  been  legally 
authorized  to  be  emitted.  The  collapse  of  this  most 
gigantic  financial  bubble  of  history  was  terrific.  Be- 
fore the  close  of  1720,  the  shares  of  the  Company 
could   be   bought   for  a  louis  d'or,   and   the   paper 


ON  MONEY.  295 

money  became  worthless.^  Nevertheless,  Law  was 
a  great  man.  His  accounts  in  all  these  immense 
transactions  were  as  clear  as  daylight.  He  believed 
in  his  system  till  the  day  of  his  death,  and  referred 
its  failure  to  the  caprices  of  a  despotic  government. 
His  mind  too  much  loved  unity,  and  his  plan  gavcp  ^/ 

too  little  scope  to  individual  liberty.  But  the  central  .  ^ 
vice  of  all  was  a  mistake  as  to  the  nature  of  money. " 
Money  is  a  medium,  and  its  amount  cannot  be  in- 
creased beyond  a  certain  limit  without  disaster. 
Moreover  money  does  not  represent  the  commodities 
which  it  helps  to  exchange,  any  more  than  ships 
represent  the  cargoes  which  they  carry. 

Thus  Law's  paper  money  ran  its  course  in  about  .'^  ^  ^^«*^ 
four  years.    Again  at  the  close  of  the  century  France ''^^'^^'^  ^"^ 
tested  the  merits  of  paper  money,  and  the  principle  -^^w^**-*'^ 
that  money  may  represent  commodities,  on  a  grand -^i h^r^'^ 
scale.     As  the  great  revolution  went  forward,  and  a 
scarcity  of  money  was    experienced,   the    National 
Assembly,  in  the  spring  of  1790,  issued,  under  the 
name  of  "  assignats,"  a  paper  money  based  on  the 
value  of  the  lands  of  the  Church  which  had  been 
confiscated  to  the  State.    The  assignats  were  receiv- 
able   in    payment   for  these  landed   estates  at   any ,    »+-  r^^^^^L  h 
public  sale  of  the  same.    The  first  emission,  but  no*  v^^.,.^^  ^W-r- 
the  rest,  bore  interest.     That  issue  was  400,000,000 ;;^^^^J^,^'*, 
francs  — -  about  one  fifth  the  value  of  the  confiscated 
lands.    In  September,  800,000,000  more  were  author- 
ized,  Talleyrand  opposing   and    Mirabeau   strongly 
urging  these  additional  issues.     "  It  is  in  vain,"  said 
Mirabeau,  "to  compare  assignats,  secured   on   the 

1  Martin's  Decline  of  the  Monarchy,  chap.  i.  Macleod's  Theory  and 
Practice  of  Banking,  chap.  xi.  Bancroft's  United  States,  chap,  xxiii.  New 
Am.  Cyclo.,  Art.  John  Law. 


296  ELEMENTS  OF  POLITICAL  ECONOMY. 

solid  basis  of  these  domains,  to  an  ordinary  paper 
currency  possessing  a  forced  circulation.   They  repre- 
sent real  property,  the  most  secure  of  all  possessions, 
the   land   on  which  we   tread."     Nevertheless,  and 
though  all  assignats  were  legal-tender,  they  drooped. 
The  government  in  alarm,  while  issuing  on  the  one 
hand  enormous  quantities  of  the  paper  to  meet  the 
vast  expenses  of  the  Revolution,  which   quantities 
were  swelled  by  skillful  counterfeiters  in  the  prisons 
and  elsewhere,  took  strong  measures  on  the  other  to 
to4y3  -uv«-t/  ■'•  prop  up  their  market  value ;  the  use  of  coin  was  pro- 
^  rA*.,*^  «t^ ">.  hibited;  a  maximum  price  in  assignats  for  everything 
was  established  by  law ;  heavy  penalties  and  at  last 
death   were  decreed   against  those  who  refused   to 
receive  them  at  par ;  but  it  was  all  in  vain.     "  They 
T^tUi/v^/nct..^  sink  now,"  says  Carlyle,  "with  an  alacrity  beyond 
.-^'^  parallel."     In  June,  1793,  the  assignats  had  fallen  to 

33,  and  in  August  to  16  per  cent.  Renewed  con- 
fiscations kept  the  estimated  value  of  the  public 
domains  far  in  advance  of  the  par  value  of  the  assig- 
.  nats  based  upon  them ;  but  this  had  no  tendency  to 
prevent  the  depreciation  of  the  assignats,  because 
money  is  a  medium  of  exchange,  and  its  proper 
^/•.c^  amount  has  no  relation  to  the  estimated  value  of 
XK.^  \  any  commodities  at  all.  In  February,  1796,  the  assig- 
nats legally  issued  had  amounted  to  45,500,000,000 
francs,  and  had  fallen  to  one  two  hundred  and  sixty 
fifth  part  of  their  nominal  value,  that  is,  to  two  fifths 
of  one  per  centum.  The  government  then  offered  to 
redeem  them  at  30  for  1  in  "  mandats,"  which  entitled 
the  bearer  to  take  immediate  possession  at  their  esti- 
mated value,  of  any  of  the  lands  pledged  by  the  as 
Bignats.    Accordin^^  to  M.  Thiers,  who  is  my  author 


ON  MONEY.  297 

ity  in  this  paragraph,  the  mandats  sold  first  at  15,  then 
rose  to  40,  and  in  some  places  to  80,  and  soon  sank 
again  to  5  per  centum.     A  decree  of  July  16,  1796, 
ended  the  matter  by  permitting  any  one  to  do  busi-r-wAvk^^/*^  ', 
ness  in  any  money  he  chose ;  and  business,  which  ^t^*^^'  ' 
had  practically  ceased  under  the  paper  money,  re- 
vived again  at  the  sight  of  the  coin,  which,  of  course, 
had  been  out  of  circulation.    Thus  the  assignats  had  y(^^,,^  P«„^ 
a  course  of  about  six  years.     The  distress  and  con-    '\  (l^  ^^ 
sternation  into  which  a  country  falls  when  its  meas- 
ure of  value  is  disturbed  and  destroyed,  as  it  was  by 
the  issue  of  the  assignats,  is  past  all  powers  of  de- 
scription.    There  can  be  no  doubt  that  these  assig- 
nats caused  more  suffering  in  the  French  Revolution, 
a  hundred  fold,  than  the  prisons  and  the  guillotine. 
It  may  be  said  that  the  government  ought  not  to  r^  • 

have  issued  them  in  such  quantities.      Perhaps  it  ^      f^^ 
ought  not.     But  there  never  has  been  a  government'"'  ''-^^''^'^^■^- 
yet,  of  the  many  which   have  issued  irredeemable 
paper,  which  had  the  wisdom  and  the  firmness  to 
resist  for  any  great  length  of  time  the  temptation  toji^^p^^yju^-*^ 
emit  large  quantities.     There  is  no  stopping  when/,    ^    ^  ,,^  ^ 
once  the  issue  is  begun.     The  first  batch  of  such 
paper  usually  banishes  the  coin  from  the  currency. 
There  is  no  way  to  entice  it  back  except  to  call  in  and 
burn  up  the  paper.     Revolutionary  governments  are,  J     iJ^iX 
not  generally  in  position  to  be  able  to  do  this.    Ordi- /^7^    j/LU 
nary  national  expedients  are  denied  them.    They  can-''    ''  ^ 
not  borrow.     Therefore  they  have  recourse  to  credit- 
money,  which  is  really  borrowing  without  interest, 
and  when  once  the  press  is  set  at  work  it  must  work 
on  with  livelier  speed,  because  just  in  the  ratio  of 
the  depreciation   is  a  greater   amount  required   to 


298  ELEMENTS   OF    POLITICAL  ECONOMY. 

meet  the  ordinary  payments.  This  example  is  sig- 
nificant, because  it  shows  the  powerlessness  of  even 
the  strongest  and  most  unscrupulous  governments 
to  regulate  the  value  of  anything.  The  assignats 
were  depreciating  during  the  very  months  in  which 
Robespierre  and  the  Committe  of  Public  Safety  were 
wielding  the  power  of  life  and  death  in  France  with 
terrific  energy.  They  did  their  utmost  to  stop  the 
sinking  of  the  revolutionary  paper.  But  value  knows 
its  own  laws,  and  follows  them,  in  spite  of  decrees 
and  penalties. 

The  bills  of  credit  issued  by  the  Continental  Con- 
gress during  the  American  Revolution  had  a  course 
^  and  issue  very  similar  to  those  of  the  French  assig- 

;.  .  Cv  "^-ts.  Unlike  them,  these  were  based  simply  upon 
the  good  faith  of  the  people  whom  the  Congress 
represented.  Their  vice  was  not,  as  in  the  previous 
instances,  the  supposition  that  money  may  be 
founded  on  the  value  of  specific  commodities;  but 
their  emission  ignored  this  fundamental  law  of 
-y  vcvlW^^'^^"^^'  J^aniely,  that  the  value  of  money  arises  as 
1  all  other  value  arises,  and  is  amenable  to  the  same 
principle  of  supply  and  demand  as  other  values ;  and 
their  vice,  consequently,  was,  that  there  was  no  nat- 
ural limitation  of  their  supply.  Money  is  either  an 
intermediate  and  equivalent  merchandise,  or  prom- 
ises to  pay  it;  that  is  to  say,  gold  or  silver,  or  prom- 
ises to  pay  them ;  and  mere  promises  to  pay  them, 
such  as  the  continental  bills  were,  unaccompanied 
by  any  provision  to  pay  them,  have  no  natural  limi- 
tation of  supply.  In  June,  1775,  $2,000,000  were 
emitted;  in  November,  $3,000,000  more;  the  next 
February,  $4,000,000  more;  and  in  August,  $5,000,- 


vt^v^.  » 


ON  MONEY.  299 

000  more.  The  depreciation  began  before  the  next 
issue  of  $5,000,000,  May,  1777.  But  the  bills  kept 
up  to  par  for  more  than  a  year.  As  the  emissions  mul- 
tiplied, the  depreciation  became  rapid.  In  August, 
1777,  they  exchanged  with  silver  at  3  for  1 ;  in  Feb- 
ruary, 1779,  at  10  for  1 ;  and  in  November,  1779,  the 
date  of  the  last  emission,  at  about  40  for  1.  Early 
the  next  year  they  dropped  out  of  circulation  alto-  ^^""^^  '^^*'> 
gether.  Thus  their  course  was  run  in  less  than  five 
years.  The  Congress  pledged  itself  not  to  emit  over 
$200,000,000  in  all ;  but  I  suspect  that  that  limit,  as 
is  usual  in  such  cases,  was  considerably  overpassed, 
either  by  design  or  fraud.  Jefferson  estimates  that 
the  nation  realized  from  the  $200,000,000,  $36,367,- 
720  in  specie  value.^  Most  of  these  bills  were  never 
redeemed.  ffj     - 

The  United  States  legal-tender  notes  which  began  ~'^ 
to  be  issued  in  April,  1862,  and  of  which  $450,000,000  '^'^^^^^o^ 
were,  put  into  circulation,  are  in  their  nature  like  the     '**'^ 
continental  bills,  and  have  been  more  or  less  depre- 
ciated from  the  first,  and  at  times  very  much  depre- 
ciated.    It  may  be  questioned  whether  the  making  ^vvaA.ouv%6^ 
these  notes  a  legal  tender  has  appreciated  their  value  :>t^^^;: 
at  all ;  so  far  as  the  demand  for  them  to  pay  debts   '-*^  ""-^  ^ 
with  has  been  thereby  increased  it  has  had  such  a 
tendency,  but  so  far  as  it  indicated  a  lack  of  confi- 
dence on  the  part  of  the  government  in  the  validity 
of  its  own  promises  the  tendency  has  been  the  re- 
verse.    The  faith  of  the   people  in  their  money  is  VA^u  gXv^*^-- 
very  properly  more  sensitive  and  more  easily  shaken  ?t.^«o~**\^ 
than  their  faith  in  anything  else  ;  and  this  is  one  of -•'^^'*-^  a^-^^ 
several  weighty  reasons  why  the  element  of  credit 
should  not  enter  into  the  money  at  all.     Credit  is 

1  Jefferson's  Works,  vol.  ix.,  page  259. 


300  ELEMENTS  OF  POLITICAL  ECONOMY. 

good  in  its  place,  but  in  the  people's  current  money 
it  is  out  of  place.     Hence  these  notes,  notwithstand- 
ing their   legal-tender   character,    have    been    much 
^^  more   depreciated   than   any   form   of  the   national 

bonds.     I  cannot  think  that  good  financiering  would 
>-''-*■  have  found  it  necessary  to  issue  such  paper;   and  I 

^^^  -  am  quite  sure  that  making  it  legal-tender  has  not  on 

the  whole  enhanced  its  value.  In  the  Eastern  and 
Middle  States,  the  legal-tenders  had  no  more  accept- 
ance at  first  than  the  bills  of  their  State  banks,  which 
were  equally  irredeemable. 

Between  the  years  1782  and  1865,  there  circulated 
in  the  United  States  a  paper  money  consisting  of 
i^Av^  bills  issued  by  banks  established  under  the  authority 
^  »«  of  the  individual  States.  These  bills  were  nomi- 
nally  convertible  into  coin  at  the  will  of  the  holders. 
Some  of  the  States  required  their  banks  to  keep  a 
percentage  of  specie  on  hand  for  the  redemption  of 
their  bills ;  but  most  of  them  required  only  a  deposit 
of  some  kind  of  securities  with  an  officer  of  the 
State,  on  the  strength  of  which  securities  the  banks 
were  allowed  to  issue  an  equivalent  value  in  bills ; 
and  some  of  the  States  did  not  even  require  so  much 
as  this.  The  fallacy  of  founding  a  paper  money 
upon  public  securities,  will  be  fully  exposed  in  the 
following  paragraphs;  it  is  here  only  necessary  to 
observe  that  our  proposition,  if  correct,  condemns 
the  money  of  these  State  banks.  Some  of  it  was 
.-  ,.  ,_,  better  than  the  rest,  but  none  of  it  deserved  the 
^,^^^^;praise  of  being  a  satisfactory  money.  (1.)  It  was 
liable  to  great  and  sudden  contractions  and  expan- 
sions in  volume.  For  instance,  the  volume  in  1858 
was  $59,570,474  less   than  in  1857;   and  in  1863 


ON   MONEY.  301 

$54,885,139  more  than  in  1862.  (2.)  The  ratio  of 
paper  to  the  specie  reserved  to  redeem  it  was  a  high 
ratio.  The  average  for  the  whole  country  in  Jan- 
uary, 1863,  was  4  to  1 ;  in  Rhode  Island  more  than 
12  to  1 ;  and  in  Vermont  more  than  28  to  1.^  Such 
a  paper  can  only  be  called  redeemable  by  stretch  of 
courtesy.  (3.)  As  a  matter  of  fact,  so  soon  as  there 
began  to  be  a  financial  pressure,  especially  when- 
ever the  exigencies  of  commerce  withdrew  gold  for 
foreign  trade  from  reserves  already  so  small,  the 
banks  were  compelled  to  confess,  what  everybody.  .  a  '  . 
knew  before,  that  they  were  unable  to  redeem  their  ^♦c  n<^^  >i 
promises.  ^  Four  or  five  times,  during  the  continu- 
ance of  the  system,  panics  attacked  the  paper  money, 
and  the  banks  suspended  specie  payments.  In  these 
times  of  stress  some  of  the  banks  did  better  than 
others ;  the  Bank  of  the  State  of  Indiana,  for  exam-  ^  ol 
pie,  under  the  management  of  the  Hon.  Hugh  Mc- 
CuUoch  and  others,  maintained  specie  payments  in 
the  trying  periods  of  1857  and  1861.2  (4,)  The  insta- 
bility of  the  general  system  tended  towards  a  reckless 
way  of  doing  business,  and  led  on  to  frequent  bank- 
ruptcies, which  became  a  just  reproach  to  us  in  for- 
eign countries.  The  banks  contributed  powerfully 
in  times  of  quiet  by  a  system  of  generous  loaning, 
on  which  their  profits  depended,  to  induce  a  spirit 
of  speculation  and  a  willingness  to  contract  debts, 
and  experienced  when  the  reaction  came,  how  much 
easier  it  is  to  loan  paper  promises  than  to  fulfill  them. 
Their  inability  to  continue  in  troublous  times  the 
free  loans  which  helped  to  bring  them  on,  and  their 
repeated  failures  to  make  good  the  obligation  to  re- 

1  Finance  Report,  1863. 

2  Letter  of  Mr.  McCulloch,  August  17, 1867. 


302  ELEMENTS  OF  POLITICAL  ECONOMY. 

deem  their  own  notes,  caused  incalculable  losses  of 
property.  There  can  be  no  hesitation  in  affirming 
that  the  expense  of  maintaining  a  gold  and  silver 
money  for  all  the  wants  of  the  whole  country,  might 
have  been  met  many  times  over  from  the  losses 
resulting  from  this  bank-paper  system.  It  is  fortu- 
nate that  the  people  concluded  to  abandon  it. 

We  come  now  to  the  money  of  the  present  na- 
frt-ta'  tional  banks  organized  under  the  law  of  February, 
1863.  This  money  is  really  much  better  than  that 
last  considered,  because  the  banks  issuing'  it  are 
amenable  to  a  central  authority  and  to  common  reg- 
ulations. They  deposit  with  the  national  Comptrol- 
ler of  the  Currency  gold-bearing  government  bonds 
to  an  amount  somewhat  greater  than  that  of  the 
circulating  notes  which  they  receive  back  from  him, 
so  that  the  redemption  of  the  notes  may  be  provided 
for  by  the  sale  of  the  bonds,  in  case  the  banks  do 
not  redeem  the  notes.  The  banks  are  also  required 
to  keep  in  deposit  at  Washington  for  redemption 
purposes  five  per  cent,  of  their  circulation  in  legal- 
tender  money.  The  law  of  1874  removes  all  limits 
to  the  aggregate  amount  of  the  circulating  notes  of 
national  banking  associations.  The  total  amount 
of  bank-notes  authorized  at  first  was  $300,000,000 ; 
this  was  increased  in  1870  to  $354,000,000;  and 
now  all  restriction  as  to  limit  is  removed  from 
most  banks  in  particular  and  from  all  the  banks  as 
a  whole.  These  changes  bring  to  light  the  vicious 
principle  that  underlies  the  present  system,  so  far 
forth  as  it  is  authorized  to  issue  money.  It  is 
just  as   bad  in   principle  to  base  a  paper  money 

*A?^  ^^®  ^*^  °*  •^^^^'  "^  ^^^  ^a^k  organized  could  have  more  than 
$600,000  of  circulation. 


ON  MONEY.  303 

upon  government  debt,  as  upon  lands,  or  other  com- 
modities.    The   evidences  of  government  debt  are 
usually  salable  in  the  market  at  some  price,  and  so 
are  lands,  mercantile  bills,  and  all  the  articles  of  a 
prices  current.    Perhaps  the  government  debt  is  more 
uniformly  salable  than  any  of  them ;  but  there  is  no 
relation  of  a  proper  amount  of  money  for  any  coun- 
try to  the  amount  of  its  national  debt,  any  more  than^i  ^, , 
to  the  value  of  its  lands.     The  absurdity  of  the  prin- ^^^^^^^^ 
ciple  was  only  disguised  by  an  arbitrary  limitation  o^/^^^^jj^  d 
it.     If  it  was  proper  to  base  $300,000,000  of  paper  v,v^^.^^,„^^  { 
money  on   $333,333,333  of  government  bonds,  why  vC^(^^^  <> 
was  it  not  proper  to  base  $300,000,000  more  of  pa- 
per money  on  $333,333,333  more  of  the  government 
bonds,  and  so  on,  till  the  amount  of  money  shall  ap- 
proximate the  amount  of  the  debt  ?    Any  limit  placed 
was  purely  artificial,  and  has  now  been  entirely  re- 
moved.    A  free  banking  law,  the  logical  outgrowth 
of  the  principle,   has  been   enacted.     The    primary 
function  of  money,  it  must  be  repeated,  is  to  serve  < 

as  a  medium  of  exchange  ;  and  the  quantity  of  such 
a  medium  required  to  facilitate  the  exchanges  in  any 
country  is  impossible  to  be  determined  by  law.  The  .  . 
only  safety,  under  our  present  system,  was  to  make^'^^ 
the  amount  of  paper  decidedly  less  than  what  is 
known  to  be  the  necessary  amount  of  the  whole  cir- 
culating medium,  and  then  allow  coin  money  to  fill 
up  the  deficiency  in  accordance  with  its  own  laws. 
Under  such  circumstances,  a  fair  degree  of  confidence 
in  this  paper  money  would  be  reasonable  ;  a  part  of 
the  current  money  would  become  specie,  the  paper 
might  be  kept  at  par  all  the  while,  and  we  should 
gain  something  by  the  superior  convenience  of  the 


'■yvA/TTsaA  t 


304  ELEMENTS   OF  POLITICAL  ECONOMY. 

paper,  and  not  lose  much  by  its  inferior  steadiness. 
But  the  mischief  of  it  is,  this  paper  money  cannot 
regulate  its  own  quantity ;  it  is  not  guarded,  as  gold 
and  silver  are,  by  a  natural  limitation  of  supply; 
under  the  law  of  1874,  it  is  left  to  the  prudence  of 
some  2,000  banks,  scattered  all  over  the  country,  to 
determine  the  aggregate  amount  of  bank-notes  in 
circulation ;  it  is  for  their  interest  to  put  out  and 
keep  out  as  much  of  this  money  as  possible ;  and 
the  quantity  of  it  at  times  is  likely  to  be  excessive. 
After  all  that  can  be  said  in  favor  of  it,  it  is  credit- 
money  still,  and  exposed  to  the  dangers  insepara- 
ble from  credit-money,  namely,  the  distrust  of  the 
people,  the  undue  enlargement  and  sudden  dimi- 
nution of  its  volume,  a  consequent  unsteadiness  of 
value,  and  inconvertibility.  If  we  are  to  have  a 
national  paper  currency  expanding  and  contracting 
under  the  successive  tinkerings  of  Congress,  we  shall 
yet  experience  more  of  those  evils  of  credit-money, 
from  which  we  have  suffered  in  the  past  so  exten- 
sively in  property  and  reputation,  and  which  nothing 
but  our  exuberant  and  exulting  strength  has  enabled 
us  to  outlive  and  to  forget. 

Our  last  example  of  credit-money  shall  be  the  bills 
of  the  Bank  of  England.  This  is  an  association  of 
individuals  incorporated  under  the  style  of  the  "  Gov- 
ernor and  Company  of  the  Bank  of  England."  The 
bank  was  a  child  of  the  English  Revolution,  and 
was  incorporated  by  Parliament  in  1694,  on  condi- 
tion that  its  stockholders  should  loan  to  government, 
then  pressed  for  funds,  the  sum  of  £1,200,000,  on 
which  they  were  promised  eight  per  cent,  as  interest, 
and  £4,000  for  management,  per  annum.     On  the 


ON  MONEY.  305 

strength  of  this  capital  stock,  which  was  simply  so 
much  of  government  debt,  the  bank  was  authorized 
to  issue  bills  to  an  equivalent  amount,  but  which  at 
first  could  only  pass  from  hand  to  hand  by  succes->^'^7^ '^^-"^  ^ 
sive  indorsements.     The  first  charter  was  terminable^^^^^^^^*^  *^     ' 
at  the  pleasure  of  the  government  any  time  after  ^"'^J^'" 
August  1st,  1705,  by  giving  a  year's  notice  to  the 
bank,  and  by  paying  the  debt  due  to  it.     The  bills  i^^jm*  k^  n^ 
at  first  were  paid  promptly  in  coin  on  demand  ;  theCi^i'w  a^  du^ 
bank  became  the  means  of  increasing  the  credit  at 
home  and  the  strength  abroad  of  the  revolutionary 
government   of    William   and    Mary;    and    conse- -^4^,.^  j^  il 
quently  the  Whigs  were  the  friends,  and  the  Jaco-<^..^,>,<^  ^. 
bites  the  foes,  of  the  bank.     The  government  wasVWjJTr.««W^ ; 
strengthened   in  a  sense   by  its  own  indebtedness; 'vW^^ 
for  it  was  felt  that  if  James  II.  should  regain  the /^       ^^  A^ 
throne,  no  pound  of  the  loan  would  ever  be  paid  5^U/  aU-c^ 
back.     "  So  closely,"  says  Macaulay,  "  was  the  inter-  (^-^Zdi^^^- 
est  of  the  bank  bound  up  with  the  interest  of  the 
government,  that  the  greater  the  public  danger  the 
more  ready  was  the  bank  to  come  to  the  rescue." 
As  already  related  under  the  last  general  proposition, 
the  silver  coins  of  the  realm  were  at  this  time  much 
worn  and  clipped;  the  bank  had  received  them  at 
their  nominal  value ;  but  after  the  recoinage  began 
in  1696,  it  was  obliged  to  redeem  its  bills  in  new 
coin  of  full  weight,  that  is,  for  perhaps  7  ounces  of 
silver  received,  it  was  now  bound  to  pay  12.^     Con- 7^^  V^vyuy 
sequently  its  enemies  made  a  run  upon  the  bank  hyU^^xA^j-i^ 
collecting  its  notes  to  a  large  amount  and  presenting 
them  for  redemption.     The  bank  was  obliged  to  sus- 
pend specie  payments,  at  first  partially,  and  then 

1  Macleod's  Banking,  vol.  i.,  page  357. 


306  ELEMENTS  OF  POLITICAL  ECONOMY. 

generally.  In  February,  1697,  its  notes  were  24  pei 
cent,  below  par.  A  new  charter,  granted  just  at  this 
time,  extended  the  term,  and  doubled  the  capital 
stock  of  the  bank,  one  fifth  of  the  subscriptions  to 
^^  '  which  increase  was  receivable  in  bank  notes.     This 

brought  up  the  notes  to  par,  and  made  the  indebted- 
ness of  government  to  bank  ^2,201,171.     This  sec- 
vuAltvon^    .    end  charter  practically  gave  the  monopoly  of  banking 
^"^         V       *"  England  to  the  Bank  of  England,  and  provided 
I     —f      n        that  if  the  bank  did  not  redeem  its  notes,  they  might 
be  presented  at  the  Exchequer  and  redeemed  out  of 
the  annuity  due  to  the  bank.     In  1709  the  term  was 
again  extended,  the  capital  stock  again  doubled,  and 
the  interest  on  the  whole  debt  reduced  from  eight  to 
six  per  cent.     Each  increase  of  the  debt  due  from 
\    ,  v;  J,       the  government  to  the  bank  carried  along  with  it  the 
J  \> ''^     ^    privilege  to  the  bank  of  increasing  by  so  much  the 
(_  „       ,  ^  issue  of  its  notes.     Here  is»the  vicious  principle  in 
U  V^v^w'  *^^  Bank  of  England.    It  assumes  that  a  paper  money 
may  he  properly  based  on  a  government  debt     But 
^.^  ijv.v*,^c.  upon  how  much  of  that  debt  ?     A  limit  must  be 
placed  somewhere  ;  and  the  goodness  of  the  money 
ij^  '\<,.^A.«.V  v-Ati.  will  depend  after  all  not  on  the  debt,  but  upon  the 
,Vi.f  *  J     coin  on  hand  to  convert  the  money.    The  bills  of  the 
Bank  of  England    have   been  and  are  a  tolerable 
money,  not  so  much  because  there  is  a  part  of  the 
national  debt  behind  them,  as  because  there  is  gen- 
erally a  plenty  of  solid  cash  behind  them.     In  1716 
the  bank  was  exempted  from  the   operation   of  all 
usury  laws:  why  the  bank  only,  and  not  other  peo- 
ple as  well,  the  act  of  Parliament  does  not  state.     In 
1720,  and  again  in  1745  when  the  Young  Pretender 
made  the  last  rally  of  the  Jacobites,  there  were  severe 


A* 


ON  MONEY.  807 

runs  upon  the  bank ;  on  both  occasions,  in  order  to 
gain  tinje,  notes  were  paid  in  shillings  and  sixpences. 
Best  friends  were  also  accommodated  first,  who  are  ^,         irf 
said  to  have  returned  the  bags  of  money  as  fast  as  ^^^^  ^ 
they  received  them.     The  practice  of  indorsing  the^^^^^jTj 
notes  became  gradually  disused,  though  the  law  at 
first  did  not  follow  the  innovation.     In  1759  £15 
and  «£10  notes  began  to  be  issued.     Till  then  there 
were  none  less  than  .£20.    The  bank  kept  advancing 
various  sums  to  government  on  various  conditions, 
mostly  however  at  three  per  cent,  till  1782,  when  the 
debt  stood  £11,642,400.     When  England  plunged 
into  the  war  of  the  French    Revolution,  the  bank 
came  under  the  imperious  will  of  William  Pitt.    His 
constant  demands  for  money  could  not  be  met,  and 
the  bank  at  the  same  time  give  its  usual  accommo- 
dation  to   merchants.      Thus   the   merchants   were 
refused.     The  monopoly  now  bore  its  bitter  fruit. 
Private  credit  wavered,  and  there  was  a  run  upon  the 
bank  for  cash.      The  bank  suspended  specie  pay-<7^^^.  * 
ments  in  February,  1797,  and  did  not  resume  them^'^'^^^^ 
till  1821.      Government  and   the  business  men  of     /^?~ 
London  did  their  best  to  hold  up  the  credit  of  the 
notes  during  the  suspension,  but  they  were  not  madej^  ^-hZ/^ 
a  legal  tender  for  debts.     Government  received  them^i  ^ 

at  par  for  taxes,  and  provided  that  business  V^Y'fci^it^^ 
ments  in  notes  would  be  held  as  payments  in  cash 
if  offered  and  accepted   as  such.     Debtors,  having  ^CK,(yXX^^*^  t^ 
tendered  bank  notes,  which  the  creditor  refused,  had    i,J^  -twc! 
certain  privileges  before  the  law,  which  other  debtors 
had  not.     The  notes  therefore  had  a  quasi  legaliza- 
tion, but  not  a  forced  circulation.     The  bank  was 
also  authorized  at  this  time  to  issue  .£5,  £2,  and  £1 


308  ELEMENTS  OF  POLITICAL  ECONOMY. 

notes.     Cautiously  issued  at  first,  bank  paper  con- 
tinued at  par  for  several  years  after  the  suspension, 
which  proves  that  when  government  possesses  the 
monopoly  of  issuing  paper   money,   and   carefully 
\^r  i'^  i^*'^-    limits  its  quantity,  and  both  receives  and  pays  it  out 
at  par,  it  may  keep  an  inconvertible  paper  at  par,  or 
even  by  sufficiently  limiting   its   quantity  carry  it 
above  par.     But  this  truth  does  not  make  an  incon- 
vertible paper  a  good  money,  because  it  does  not 
make  it  a  self -regulating  money,  and  because  gov- 
ernment is  not  wise  and  firm  enough  to  fix  and 
maintain  a  proper  limit.      Though    Parliament  in- 
tended in  successive  acts  to  confirm  to  the  Bank  of 
►oAji^c^CnA-Y"  England  the  monopoly  of  banking  by  enacting  that 
rf^<rvwY-Jv^~   no  partnership  of  more  than  six  persons  should  take 
up  money  on  its  own  bills,  yet  the  common  law 
assured  to  private  persons  and  smaller  partnerships 
the  right  to  do  this ;  and  private  bankers  multiplied 
'^^  '     after  the  suspension,  since  they  were  allowed  to  pay 

'     'iS  iW^      their  notes  in  Bank  of  England  notes.      Thus   the 
\*^x^  ^y       quantity  of  paper  money  gradually  increased  till  in 
August,  1813,  the  Bank  of  England  notes  were  at 
thirty  per  cent,  discount  in  gold.     In  the  following 
years,  large  numbers  of  country  bankers  failed,  and 
their  notes  were  reduced  to  one  half  what  they  had 
been,  and  Bank  of  England  paper  rose  almost  to  par, 
and  ia  partial  resumption  of  specie  payments   took 
place  in  1816.     In  accordance  with  the  principles  of 
a^^     ^he  celebrated  Bullion  Report  of  1810,  which  demon- 
""^   strated  that  the  market  price  of  gold  (in  paper)  and 
the  state  of  the  foreign  exchanges  were  the  infallible 
indices  of  the  value  of  a  paper  money,  Parliament, 
in  1819,  passed  an  act  requiring  full  resumption  of 


ON  MONEY.  309 

specie  payments  at  the  bank  in  1823.     The  resump-  &<u>^.^n^.f^t^^, , 
tion  actually  took  place  in  May,  1821.     In  1829,  all 
notes  whatsoever  for  less  than  £5  were  forbidden  to 
be  circulated  in  England.     When  the  bank  charter 
was  renewed  for  the  ninth  time  in  1833,  the  bills  of  ru}^  uut^"'^ 
the  Bank  of  England  were  declared  to  be  a  legal y^    ^^  ^u.^^ 
tender  for  debts,  so  long  as  the  bank  paid  them  on  de^     ^  ■      ^    ^^ 
mand  in  legal  coin ;  and  the  same  act  legalized  the    ' 
issue  of  paper  money  by  other  banks   (no   matter 
how  many  partners)  outside  of  a  radius  of  sixty-five  ^^^^^^^e'*^^^*-^  <^ 
miles  from  London,  and  also  legalized  banks  within '''^'^  tr^t^A4^ 
the  radius,  but  they  could  not  issue  paper  money. 
From   1694  to  1711,  the  issues  of  the  bank  were 
limited  by  law  to  the  amount  of  the  debt  owed  to  it 
by  the  nation ;  from  1711  to  1844  there  was  no  lim- 
itation on  the  issues,  only  the  bank  was  required  (the 
suspension  excepted)  to  pay  its  notes  in  coin  on  de- 
mand; but  in  1844,  Sir  Robert  Peel  gave  the  bank     , 
through  Parliament  a  new  constitution,  under  which  \^^^^  ^^ 
it  is  still  managed,  and  which  restricts  its  issues  to  Lvt-^M^Uv- 
£15,000,000   on   the   basis   of  securities,  of  which^*-- ,t'^ 
something  over  £11,000,000  consists  of  the  govern-^^^.^,^^^^^^^^ 
ment  debt,  and  for  all  issues  beyond  this  amount  i^ i\^-^r>^%^  J^ 
must  have  pound  for  pound  of  gold  and  silver  in  its^^^^f^,^^,^^^^ 
coffers.     The  average  amount  of  notes  in  circulation         ^         , 
is  about  £30,000,000,  one  half  based  on  specie  in^  eA:i^«-J  ^'^ 
reserve  and  one  half  on  securities.     The  bank  is  also 
obliged  to  buy,  and  pay  for  in  notes,  all  gold  bullion  / 

and  foreign  coins  offered  to  it,  at  the  rate  of  £3  17^.    Ot^  V*"/ 


Qc?.  per  ounce  standard  fine ;  so  that,  if  notes  depre- 
ciate as  compared  with  coin,  they  can  be  at  once 
changed  into  coin,  or  bullion  and  coin  can  be  changed 
into  notes  if  the  latter  are  preferred.     The  issue  de- 


^.^lJ. 


310  ELEMENTS  OF  POLITICAL  ECONOMY. 

partment  of  the  bank  is  made  quite  distinct  from 
the  loaning  department,  which  latter,  receiving  its 
notes  only  from  the  issue  department,  raises  and 
lowers  its  rate  of  discount  according  to  the  state  of 
the  market,  but  usually  keeps  its  rate  a  trifle  higher 
than  the  market  rate,  so  as  to  be  able  to  act  as  a 
U\4  fc4  (h-^'  support  to  private  bankers  and  others  in  case  of 
V^^  pressure.     For  many  years  the  bank  has  conducted 

»    (  its  business  upon  the  sound  principle  of  raising  its 

rate  of  discount  whenever  the  foreign  exchanges  be- 
«-^j>a<«^  ^%.  come  adverse  and  there  is  a  consequent  call  for  gold 
^"^^^^  for  exportation,  and  also  whenever  the  rate  of  dis- 

count in  the  neighboring  commercial  countries  is  a 
good  deal  higher  than  its  own.     The  due  proportion 
of  the  paper  money  to  the  specie  in  reserve  is  main 
tained  through  a  proper  regulation  of  the  rate   oi 
discount.     The  regulating  act  of  1844  restricted  the 
issue  department,  but  it  did  not  restrict  the  loaning 
department.     Gold  can  be  drawn  from  the  bank  not 
simply  by  the  presentation  of  notes,  but  also  by  the 
checks  of  depositors,  that  is,  by  those  who  have  sold 
bills  of  exchange  to  the  bank.     Hence  the  converti- 
U^    ft  ti         ^ility  of  the  notes  can  be  kept  up  only  by  careful 
^^^"^  regulation  of  the  rate  of  discount.      Thrice   since 
1844  the  government  has  authorized  the  bank  to  vio- 
^  late  its  charter,  and  to  issue  more  notes  than  that 

allows  on  securities  temporarily;  in  1847,  in  1857, 
and  again  in  1866.  The  propriety  of  this  restric- 
tion has  been,  and  is  still,  vehemently  debated  in 
England ;  and  it  is  an  open  question  also  whether 
England  is  any  richer  for  the  use  of  Bank  of  Eng- 
land bills.  It  seems  to  me  that  the  purposes  of  the 
Bank  of  England,  as  a  great  national  bank  of  sup- 


ON  MONEY.  311 

port,  wouJd  be  better  met  by  the   abolition  of  this 
restriction.     Banking  is  now  thoroughly  understood 
by  the  Directors  of  the  Bank  of  England ;  and  they 
may  be  safely  left  to  their  discretion  to  sustain  pub- 
lic credit  in  times  of  crisis.     The  Joint  Stock  and 
Private  Banks  of  the  United  Kingdom  are  at  present  l^A^^^c^u-^ 
authorized  to  issue  a  little  over  <£155000,000  of  hank9^-^^^^'-~   " 
notes.     The  average  circulation   of  all  the  British  ;3j^"^2  -» 
Banks  is  a  little  less  than  £45,000,000.     There  are       •  ^^^ 
£80,000,000  of  coin  money  in  the  currency  of  Great 
Britain.     The  ratio  of  paper  money  to  coin  money 
in  France  is  very  nearly  the  ratio  of  13  to  35. 

In  my  judgment,  the  most  economical,  and,  taking  Co-^^tl<^■^ 
all  things  into  consideration,  every  way   the    best  ^-.^^^f^^*^  ^ 
money,  is  the  gold  and  silver  which  God  has  evi- f '^^~'*''^^^^ 
dently  designed  for  that  purpose.     I  would  have  no^^^^^^^^^t^ 
other  mowg;^,  still  less  any  other  legal-tender.     Thisi*^^  ,ci^^o  • 
position  does  not  exclude  the  freest  use  of  those  con- 
venient, economizing,  commercial  expedients,  such 
as  bills  of  exchange,   drafts,  checks,   money-orders 
through  the  post-office,  and  so  on,  which  are  suffi- 
cient to  prevent  for  the  most  part  all  burdensome 
transfers  of  coin.     The  public  has  not  yet  reflected 
sufficiently  on  the  peculiar  functions  of  money,  nor 
discriminated  as  it  should  the  proper  sphere  of  credit 
from   the  proper  sphere   of  currency.     Let  the  cur- 
rency stand  securely  in  its  own  right  as  value-money, 
and  then  the   various   forms  of   paper   credit  will 
safely  come  in  to  remove  all  the  inconveniences  and 
secure  all  the  advantages  of  a  perfectly  sound,  an 
everywhere  acceptable,  and  a  naturally  self-regulat- 
ing money. 
6.  Government  ought  to  leave  freely  to  the  parties 


rK  *-}LiL4j  *^^ 


312  ELEMENTS  OF  POLITICAL  ECONOMY. 

concerned  the  rate  of  interest  to  he  paid  on  money 
loaned. 

The  law  of  Moses  forbade  to  the  Israelites  the 
taking  from  one  another  any  interest  on  money 
loaned,  but  at  the  same  time  it  allowed  them  to 
take  such  interest  freely  of  strangers ;  the  permis- 
sion in  the  one  case  going  to  show  that  there  is 
nothing  in  the  taking  of  interest  in  itself  unjust  or 
sinful,  and  the  prohibition  in  the  other  being  readily 
explainable  from  the  general  purpose  of  the  munici- 
pal regulations  of  Moses,  which  was  to  found  an  agri- 
cultural and  not  a  trading  comrnon wealth,  in  which 
every  family  was  to  possess  land  that  could  not  be 
permanently  alienated  or  sold,  in  which  it  was  a 
great  object  to  maintain  the  personal  independence 
and  equality  of  these  families,  in  which  the  law  for 
the  recovery  of  debts  was  very  summary  and  effect- 
ive, lessening  the  risk  of  losing  the  principal,  and 
which  was  to  be  and  was  sedulously  separated  in 
its  usages  from  the  surrounding  nations.  It  has 
been  well  understood  for  a  long  time  that  the  mu- 
nicipal code  of  Moses  was  local  and  peculiar,  not 
necessarily  applicable  at  all  to  the  circumstances  of 
other  States,  and  in  no  sense  binding  on  the  con- 
science of  legislators ;  and  yet  there  doubtless  sprung 
from  the  prohibition  referred  to  a  prejudice  against 
interest,  and  this  prejudice  was  perhaps  deepened 
in  the  Middle  Ages  and  onwards  by  the  conduct  of 
the  Jews  themselves,  who,  in  addition  to  their  sin 
of  persistently  growing  rich  in  spite  of  the  endless 
disabilities  laid  on  them  by  the  people  of  Europe, 
always  demanded,  in  accordance  with  the  permis- 
Bion  of  their  great  lawgiver,  a  per  cent,  of  interest 


ON  MONEY.  813 

from  those  strangers  to  whom  they  became  money- 
lenders.   The  Jews  were  everywhere  hated,  and  con- 
sequently the  usury  which  they  practised  was  hated 
also.     The  fundamental  absurdity  of  forbidding   in 
trading  communities  the  taking  of  interest  on  sums 
loaned  to  a  borrower  which  he  was  at  liberty  to  use 
for  his  own  profit,  deterred  the  nations  from   going 
to  the  length  of  prohibition,  unless  it  might  be  in 
th  3  case  of  the  hated  Jews.     There  is  a  clause  of    . 
Magna  Charta,  interesting  as  showing  how  early  the/Sc  -c^^^  '^ 
children  of  Abraham  became  the  money-lenders  oiOyu)-f>-^^^^^^^^ 
Europe,  to  the  effect  that,  during  the  minority  of 
any  baron,  while  his  lands  are  in  wardship,  no  debt 
which  he  owes  to  the  Jews  shall  bear  any  interest. 
The   prejudice   against   interest  embodied   itself  in ^^^^^^^^ 
what  are  called  usury  laws.     These,  without  pro-^^^^^  J^  4^^ 
hibiting  the  taking  of  interest,  prescribe  a  maximum /^/U:,  o-^ 
rate  per  cent,  which  lenders  may  receive,  and  an- 
nounce a  penalty  in  case  they  take  more.     The  pen- 
alty is  sometimes  the  forfeiture  of  the  entire  interest, 
and  sometimes  of  the  entire  debt. 

Usury  laws,  however,  have  not  sprung  wholly  from 
the  old  prejudice  that  to  take  interest  was  a  great 
moral  wrong,  and  the  greater  the  more  was  taken ; 
they  sprung  also  from  a  false  notion  which  used  to 
be  pretty  general,  but  which  is  now  at  length  thor-  '^^'^^'^ Jl  ^^^^^ 
oughly  exploded,  that  governments  were  competent^^^^^^^^^^,  . 
to  determine  the  value  of  their  own  money;  and 
there  has  been,  and  is  still,  a  curious  and  harmful 
confusion  in  respect  to  this  term,  the  value  of  money. 
In  the  only  proper  sense  of  the  term,  the  value  of 
money  means  its  power  of  purchasing  services  in 
general,  and  the  value  of  money  is  high  when  a 
given  sum  of  it  will  purchase  much  of  general  ser- 


314  ELEMENTS  OF  POLITICAL  ECONOMY. 

vices,  and  low  in  the  contrary  case;  but,  unfortu- 
nately, the  terms  "high  and  low  value  of  money" 
have  also  been  used  to  denote  a  high  or  low  rate 
of  interest  on  money  loaned,  which  is  a  very  differ- 
ent signification,  and  a  high  or  low  rate  of  interest 
depend  on  a  very  distinct  set  of  causes  from  those 
which  determine  a  high  or  low  value  of  .money; 
nevertheless,  so  long  as  governments  supposed  that 
they  could  regulate  the  latter,  it  is  perfectly  natural 
that  they  should  also  suppose  that  they  could  regu- 
late the  former;  and  although  all  intelligent  govern- 
ments have  given  over  the  idea  of  being  able  to 
regulate  the  value  of  money,  many  of  them  still 
adhere  to  the  idea,  equally  false  as  the  other,  that 
they  are  able  to  regulate  the  loanable  value,  or  the 
rate  of  interest,  at  least  to  prevent  any  more  than 
their  prescribed  maximum  rate  from  being  taken. 
.  ,  Are  such  laws  needful  ?  Are  they  beneficial  ?  Are 
:  ..r  1^^  *hey  in  accordance  with  sound  principles,  or  do  they 
'  violate  them  ?     Has  a  government  any  right,  after  it 

has  stamped  or  engraved  its  money,  and  parted  with 
it  to  the  people  in  return  for  value  received,  to  say 
that  they  into  whose  hands  it  has  rightfully  come 
shall  only  have  so  much  under  any  circumstances  as 
a  reward  for  foregoing  the  use  of  it  themselves  that 
somebody  else  may  have  the  use  of  it  ? 

Let  us  see  precisely  the  nature  of  the  transaction 
when  one  man  loans  money  to  another.  It  is  a  clear 
!t,^v^  j^-^^v  case  of  value.  The  lender  does  a  service  to  the 
n^f  V.rfc>^'  i  borrower,  and  for  this  service  justly  demands  a  com- 
pensation. The  service  is  this :  The  lender  might 
himself  use  the  money  to  gratify  his  own  desires.  It 
is  his  money;  he  may  use  it,  as  he  pleases,  for  his 
own  gratification.      Or,  he  may  himself  employ  it 


ON  MONEY.  315 

productively,  and,  at  the  end  of  the  period,  receive 

back  his  principal  with  the  customary  rate  of  profit. 

If  he  surrenders  this  advantage  to  the  borrower,  if 

he  passes  over  to  him  the  right  to  use  this  money, 

Bay,  for  a  year,  he  practices  what  we  call  in  Political 

Economy  abstinence.     For  this  abstinence  he  has  a 

right  to  claim  a  reward,  precisely  as  the  man  has  a 

right  to  claim  a  reward  who  foregoes  working  for 

himself  in  order  to  work  for  me.     This  reward   of 

abstinence  is  interest.      The  money-lender  foregoes 

an  advantage.     He  performs  a  service  for  the  bor-        ,..^^^  ctt 

rower;  and,  therefore,  the  right  to  interest  stands  on    ,^«x^  #**- 

just  as  unassailable  ground  as  the  right  to  wages.         *•'**"  ^ -»-^ 

The  loanable  value  of  money  varies  under  exactly  ^^^^  ^^^^_^  ,:_ 
the  same  conditions  as  every  other  value  varies.     It/^^^^t.^^^*^ 
is  determined,  as  every  other  value  is,  by  the  actual«^i.,yvi^^v^  r^ 
exchanges  between  lenders  and  borrowers;  or,  rather, 
by  what  would  be  the  actual  exchanges,  if  they  were  _ . 

left  free.     Now  for  any  government  to  compel  a  bor-r""^  '^     ' 
rower  to  pay  six  per  cent,  when  he  might  otherwise'^*^^*"  '' 
borrow  for  five,  or  a  lender  to  take  only  seven  per  ^-^  '• 
cent,  when  his  money  is  worth  eight,  is  a  direct  vio- 
lation of  the  rights  of  property.     It  is  a  forcible  and 
pernicious  interference  with  the  freedom  of  contracts. 
It  is  based  on  the  false  premise  that  the  loanable 
value  of  money  is  uniform,  and  that  government  is 
competent  to  determine  what  it  is.     No  value   is 
uniform.    And  no  government  is  competent  to  deter- 
mine even  the  maximum  price  of  money  loaned,  any 
more  than  the  maximum  price  of  commodities. 

On  principle,  then,  these  are  the  two  considera-^^"^'"^  '    ' 
tions  which  condemn  usury  laws.     First,  it  is  invidi- 
ous to  allow  other  men,  in  every  department  of  busi- 


316  ELEMENTS   OF  POLITICAL  ECONOMT. 

ness,  to  exchange  their  services  on  the  best  terms 
they  can  make,  without  any  interference  or  control, 
and  then,  without  rendering  any  solid  reason  for  it, 
to  deny  this  privilege  to  money-lenders,  who  offer 
just  as  honorable  and  useful  services  to  society  as 
any  other  class  of  men.  Second,  it  is  a  false  notion 
altogether,  that  the  loanable  value  of  money  is,  or 
can  be  made,  uniform ;  and,  therefore,  a  rate  per 
cent,  fixed  by  the  government  constantly  infringes 
on  the  rights  of  property,  —  on  the  rights  of  the  bor- 
rowers, if  the  rate  is  too  high,  on  the  rights  of  the 
lender,  if  the  rate  is  too  low.  But  there  are  two 
other  considerations,  each,  if  possible,  better  than 
these,  which  condemn  all  legal  rates  of  interest. 
The  first  is,  that  such  laws  are  rarely  obeyed,  and 
can  scarcely  be  enforced.  Common  sense  is  outraged 
by  a  law  which  requires  a  man  to  part  with  his 
property  at  less  than  the  actual  value;  and  when 
common  sense  is  against  a  law,  it  stands  a  slim 
chance  of  observance.  If  the  legal  rate  be  six,  and 
the  actual  worth  be  eight,  who  lends  at  six  ?  Not 
the  banks.  They  require  deposits  of  their  custom- 
ers, the  use  of  whose  money  shall  make  up  to  them 
the  difference  between  the  legal  and  the  actual  rate. 
The  modes  of  evasion  are  various,  but  they  are  ade- 
quate. 

But  usury  laws,  if  they  were  not  disregarded, 
would  be  even  worse  in  their  tendency  than  they  are 
now.  They  aim,  I  suppose,  to  aid  borrowers,  and 
make  it  easier  for  them  to  contract  loans.  But  are 
borrowers,  as  a  class,  any  more  deserving  of  the  fos- 
tering care  of  government  than  are  lenders  ?  Even 
if  it  could  make  its  interference  effective,  as  it  can 


ON  MONEY.  317 

not,  is  there  any  reason  why  government,  leaving 
these  borrowers  to  make  all  other  bargains,  sales, 
and  transfers  according  to  their  best  skill  and  judg- 
ment, should  rush  to  their  rescue  only  when  they 
propose  to  borrow  money  ?  If  they  are  competent 
to  do  their  other  business  for  themselves,  govern- 
ment pays  their  capacity  a  poor  compliment  in 
undertaking  to  help  them  in  the  single  matter  of  ^,  . 

making  loans;  and  the  borrowers  in  turn  have  rea- '^'^'^^'^ ^ 
son  to  pray  to  be  delivered  from  their  friends,  since  il^ 
they,  of  all  others,  would  be  the  men  especially  in- 
jured, if  all  the  lenders  obeyed  the  usury  laws.  Sup- 
pose that  a  borrower  is  in  great  need  of  a  loan,  and 
that  for  some  reason  his  credit  is  now  a  little  weak.  t^-^-tV^  «-v^ 
Many  men  would  be  willing  to  loan  him  at  nine  per 
cent.,  which  affords  a  margin  for  the  extra  risk, 
but  at  seven,  which  we  will  suppose  the  maximum 
allowed  by  the  law,  he  cannot  borrow  a  dollar,  be- 
cause his  credit  is  not  quite  equal  to  the  best.  If, 
therefore,  the  lenders  obey  the  law,  he,  and  such  as 
he,  must  fail.  And  because  it  is  unlawful  to  take 
over  seven  per  cent,  he  will  be  obliged  to  pay  those 
who  are  willing  to  violate  the  law  ten  or  twelve,  to 
compensate  them  for  the  risk  and  odium  of  such 
violation,  while,  under  freedom,  he  could  borrow  at 
nine.  Moreover,  if  the  loanable  value  of  money  at 
the  time  be  actually  nine,  while  the  law  only  allows 
seven,  many  men  will  attempt  to  use  their  own  cap- 
ital productively,  who  would  otherwise  loan  it,  in 
order  to  realize  the  high  rate ;  and  this  action  of 
theirs  still  further  restricts  the  loan-market  and 
makes  it  more  difficult  to  borrow.  If,  then,  the 
purpose   of   government   be   to    aid   borrowers,   no 


318  ELEMENTS  OF  POLITICAL  ECONOMY. 

means  could  be  more  unskilfully  chosen  for  that 
end  than  to  pass  usury  laws,  since  such  laws,  so 
far  as  they  are  obeyed,  have  necessarily  the  oppo- 
site tendency ;  and  even  when  violated  redound  to 
the  disadvantage  of  borrowers,  so  long  as  the  laws 
themselves  are  popularly  regarded  as  of  any  legal  or 
moral  force. 

Governments  have  shown  a  noteworthy  inconsis- 
tency in  this  matter,  which  incidentally  proves  the 
unsoundness  of  their  whole  action.  While  announc- 
ing pains  and  penalties  to  those  who  take  or  pay 
more  than  a  given  rate,  they  are  careful  never  to 
bind  themselves  down  to  any  given  rate.  Govern- 
ments are  always  more  or  less  borrowers,  and  if 
usury  laws  are  necessary  in  order  to  help  borrowers 
in  a  pinch,  there  ought  to  be  a  clause  in  the  organic 
law  of  every  country,  forbidding  the  government  to 
pay  and  its  lenders  to  take  any  more  than  a  certain 
rate  per  cent.  There  is  no  such  clause  in  any 
organic  law.  Governments  wisely  follow  the  nat- 
ural market,  and  borrow  low  when  they  can,  and 
pay  high  when  they  must.  In  the  last  months  of 
Mr.  Buchanan's  administration,  the  United  States 
paid  twelve  per  cent,  on  a  public  loan,  and  could  get 
but  little  at  that.  Sauce  for  the  goose  is  sauce  for 
the  gander,  and  if  usury  laws  are  good  for  the  citi- 
zens, some  solid  reason  ought  to  be  rendered  why 
they  are  not  good  for  the  government.  The  truth  is, 
they  are  not  good  for  either,  since  natural  laws  are 
perfectly  competent  to  regulate  the  rate  of  interest, 
and  do  regulate  it  substantially  in  spite  of  a  facti- 
tious, impertinent,  and  mischief-making  interference. 
The  rate  of  interest  has  little  to  do  with  the  value  of 
money,  properly  so  called.    It  depends  on  the  propor- 


ON  MONEY.  819 

tion  between  the  sums  of  money  ready  to  be  loaned 

in   any   market,  and   the    amount   wanted   at  that 

time  by  good  borrowers  in  that  market.      Every  rise 

in  the  rate  tends  to  lessen  the  demand  of  borrowers,  <i     i 

and   every  fall  to  enhance  that  demand,  and  thus^^    , 

every  rise  and  fall  of  interest  tends  to  check  itself,^-^       aLm*''*^ 

and  while  the  daily  and  monthly  variations  of  the 

rate  for  first-class  borrowers  are  very  considerable, 

the  general  average  of  the  rate  by  years,  especially 

in  England,  where  usury  laws  are  mostly  or  wholly 

swept  away,  is  remarkably  uniform. 

In  1867,  the  State  of  Massachusetts  repealed  all 
its  usury  laws,  though  six  per  cent,  is  to  be  understood 
in  the  absence  of  special  agreement,  and  the  result 
has  been  entirely  satisfactory  to  all  classes  of  the 
people.  Rhode  Island  had  done  this  previously,  and 
has  experienced  equal*  satisfaction  in  the  result. 
Other  States  will  soon  follow  in  their  lead ;  and  this 
relic  of  ignorance  and  prejudice  will  pass  away. 
Adam  Smith  left  the  «  Wealth  of  Nations  "  disfig- 
ured by  the  concession  that  governments  might  prop- 
erly enough  pass  usury  laws;  but  it  is  gratifying  to 
be  able  to  add,  that  he  was  convinced  of  his  error  in 
that  by  Bentham's  book  on  usury,  and  fully  ac- 
knowledged his  conviction  in  the  spirit  of  a  genuine 
lover  of  truth.  We  conclude,  then,  that  usury  laws 
are  needless,  since  interest,  like  all  other  prices,  will 
perfectly  adjust  itself.  They  are  disregarded,  since 
lenders  will  loan  or  withhold  their  money  according 
to  their  own  keen  sense  of  interest.  They  are  per- 
nicious, since  they  infringe  the  rights  of  property, 
and  tend  to  prevent  weak  borrowers  from  having  a 
fair  chance  in  the  market. 


320  ELEMENTS  OF  POLITICAL  ECONOMy. 


-I 

c-  ^ 

't'* 

7 

CHAPTER  XL 

ON  CURRENCY  IN  THE  UNITED  STATES. 

I  VENTURE  to  offer  to  guide  my  readers  in  an  attempt 
to  trace  the  steps,  State  and  national,  as  well  the 
earlier  as  the  more  recent,  which  have  been  made  in 
this  country  to  find  the  way  to  a  healthy,  safe,  and 
uniform  currency.  Paper  money  of  almost  every 
conceivable  variety  has  been  tried  at  one  time  and 
'  another;  and  the  national  government  for  itself, 
'between  1836  and  1862,  made  the  experiment  of  dis- 
carding every  kind  of  paper,  both  paying  out  and 
demanding  to  receive  gold  and  silver  money  only. 
This  money  it  has  always  minted,  as  it  has  a  monop- 
oly of  the  coinage ;  but  otherwise,  and  except  as  now 
taxing  heavily  State  bank-bills,  it  has  left  the  States 
and  the  people  to  fabricate  and  circulate  whatever 
kinds  of  money  they  might  choose. 

From  the  first  establishment  of  the  English  colo- 
nies in  America,  the  matter  of  a  suitable  exchange- 
medium  attracted  public  attention,  and  was  found  to 
be  attended  with  difficulties.  The  colonists  drew  all 
their  supplies  from  the  mother  country,  and  for  a 
long  time  had  but  few  native  products  to  export  in 
return,  and  consequently  there  was  a  constant  ten- 
dency in  the  coin  which  reached  them  to  flow  off 
again  to  England  in  payment  of  these  debts.     But 


ON  CURRENCY  IN  THE  UNITED  STATES.     321 

something  must  be  used  for  the  purposes  of  domestic 
exchange.     Tobacco  in   the  southern  colonies,  and  /;i*..*^K.^t, 
corn  and  wheat  in  the  northern,  were  employed  for  a 
long  time  as  a  local  and  legalized  currency. 

In  1690  Massachusetts  set  the  first  example,  which /^^T^,,^^^^^ 
was  soon  imitated  all  over  the  country,  of  issuing  ^^^^  q^^^ 
bills  of  credit,  a  government  paper  made  receivable  i^^^j^^o^ 
taxes,  and  afterwards  made  legal  tender  in  payment  of  ' 
ordinary  debts.     At  first  these  bills,  or  treasury-notes, 
were  issued,  not  to  furnish  a  currency,  but  merely  as 
a  convenient  way  of  anticipating  the  taxes,  that  is, 
to  realize  them  at  the  beginning  of  the  year,  while 
they  would  be  gradually  paid  in  in  the  course  of  the 
year.      They  were  like  the   English  exchequer-bills 
except  that  they  bore  no  interest.      Afterwards,  a 
scheme   originating   in    South    Carolina   came  into  c  ^   ^-^^ 
general  favor,  namely,  to  open   loan-offices  for  the 
issue  of  colony-bills,  which  should  furnish  at  once 
capital  for  borrowers,  and  a  currency  for  the  people, 
and  the  interest  was  to  be  a  source  of  revenue  to  the 
colony. 

But  in  whatever  way  issued,  whether  in  the  way 
of  loan  to  borrowers,  or  in  anticipation  of  the  taxes, 
the  essential  and  inherent  vice  of  such  irredeemable  t2^ J  ...t, 
paper  was  soon  everywhere  apparent.  There  was  a 
constant  tendency  to  over-issue,  and  consequently  a 
necessary  depreciation.  There  never  was  a  govern- 
ment yet,  of  all  those  which  have  attempted  the  issue 
of  inconvertible  paper,  which  had  prudence  and  firm- 
ness enough  to  resist  for  any  great  length  of  time  the 
temptation  to  issue  such  paper  in  excess.  It  always 
has  depreciated  from  that  cause,  and  it  probably 
always  will.    So  it  was,  at  any  rate,  in  these  colonies 


322  ELEMENTS  OF  POLITICAL  ECONOMY. 

',  thus  early  in  our  history.     The  bills  of  credit  were 

"^yy  issued  profusely,  and  depreciated  indefinitely.      In 

*^  '      1749    Massachusetts   had   found    paper   money   so 

utterly  wanting  as  a  measure  of  value,  that  she  deter- 

'        mined  to  abandon  it  altogether.     She  redeemed  all 

her  outstanding  bills  in  cash  at  the  current  rate  at 

which  they  were  then  exchanging. 

The  demands  of  the  old  French  war,  and  the  va- 
,,ly^\^-.-r     rious  attempts  to  conquer  Canada,  led,  on  the  part  of 
all  the  colonies  except  Massachusetts,  to  new  and 
large  issues  of  bills  of  credit,  which  depreciated  of 
course.      Soon    after  the    conquest   of   Canada   the 
^  British  Parliament  passed  an  act  prohibiting  to  all 

the  colonies  the  issue  of  bills  of  credit ;  but  from  this 
.  restraint  the  Revolution  set  them  free ;  and,  to  pro- 
ut)^(y\  lUv    -vide  means  for  the  desperate  struggle  with  the  mother- 
y,.XJ  '         country,  there  was  no  resource  but  in  paper  money. 
,a  In  April,  1775,  Massachusetts,  which  had  disused 

paper  money  for  more  than  a  quarter  of  a  century, 
revived  its  use  by  authorizing  the  issue  of  colonial 
r#^.*pM,j  i^iiig  ^Q  ^jjg  amount  of  X  100,000,  in  sums  small 
t^>M.«X/^"  enough  to  circulate  as  a  currency;  and  on  the  23d 
f^^^'  of  June  following  the  Continental  Congress  began 
iH^  o.^>^  ^^^  fiscal  operations  by  voting  to  emit  two  millions 
Cy^<r.f#,.  .of  dollars  in  continental  bills  of  credit.  Fourteen 
'  months  had  elapsed,  and  fourteen  millions  of  conti- 

nental paper  had  been  authorized,  besides  large  local 
/,(^^^,tf.^^  issues,  especially  in  New  England,  before  its  depre- 
/...,  Jj  y  ciation  excited  any  very  considerable  alarm.  It  soon, 
however,  became  evident  that  the  only  way  to  stop 
the  depreciation  would  be  to  stop  the  issues ;  and 
Congress  made  very  persistent  but  ineffectual  at- 
tempts to  substitute  for  further  issues  a  system  of 


ON  CURRENCY  IN  THE  UNITED   STATES.  323 

loans  on  paper  bearing  interest.     At  the  same  time     - y. 

they  sought  to  sustain  their  failing  credit  by  a  reso-      '^'^ 
lution  that  their  bills  "  ought  to  pass  current  in  all    '^  *^  A^ 
payments,  trade,  and  dealings,  and  be  deemed  equal  "^^'^'"'*^"  ^^^ 
in  value  to  the  same  nominal  sums  in  Spanish  del-  '^^*^^"^' 
lars  "  ;  and  that  all  persons  refusing  to  take  them 
ought   to   be   considered   "enemies   of  the    United 
States,"   upon  whom  it  was  recommended   to  the 
local  authorities  to  inflict  "  forfeitures  and  other  pen- 
alties."   The  States  were  also  advised  to  make  these 
bills  a  legal  tender,  to  make  provision  for  the  redemp- 
tion of  the  first  six  millions,  to  avoid  the  further 
emission  of  their  own  local  bills,  and  to  take  meas- 
ures to  draw  in  those  already  out.^     The  loan  sys- 
tem failing,  Congress  reluctantly  had  recourse  to  the 
press  which  printed  the  paper  money,  and  the  next 
ten   millions   increased  the   depreciation   decidedly. 
The  paper  was  still  lawful  tender  in  payment  of 
debts ;    and  notwithstanding  the  confusion  of  con- 
tracts, the  universal  high  prices,  the  sufferings  of  the 
poor,  and  the  gains  of  the  artful  and  unscrupulous, 
Congress  felt  obliged  to  give  currency  to  the  most 
wretched  sophistries,  to  refer  the  existing  deprecia- 
tion mainly  to  "want  of  confidence,"  and  to  laud 
the  paper  as  the  only  kind  of  money  "which  cannot '^^^^^-Vf^^ 
make  to  itself  wings  and  fly  away  !     It  remains  with*^^  ' 
us,  it  will  not  forsake  us,  it  is  always  ready  at  hand 
for  the  purposes  of  commerce,  and  every  industrious 
man  can  find  it!"     The  rest  of  the  story  is  soon 
told.     Before  the  end  of  the  year  1779,  the  remain 
der  of  the  two  hundred  millions,  which,  in  the  vain 
hopes  of  stopping  the  depreciation.   Congress  had 

1  Hildreth's  United  States,  chap.  35. 


324  ELEMENTS  OF  POLITICAL  ECONOMY. 

beforehand  announced  as  the  limit  of  the  issues, 
was  put  out,  and  the  press  was  allowed  to  rest.  The 
value  of  the  money  was  then  about  38J  for  one. 
The  States  were  now  advised  to  repeal  all  laws  mak- 
ing the  bills  a  legal-tender,  and  the  scheme  of  the 
"  new  tenor  "  was  devised,  by  which  the  old  bills  were 
to  be  drawn  in  at  the  rate  of  forty  for  one,  and  funded 
in  government  bonds  bearing  interest.  This  was  the 
finishing  blow,  and  the  paper  soon  dropped  out  of 
circulation  altogether.  Just  before  the  Revolutionary 
army  in  camp  at  Newburgh  had  combined  to  refuse 
it,  and  its  circulation  was  wholly  stopped,  it  ex- 
changed for  cash  at  the  rate  of  one  thousand  for  one. 
One  thousand  for  one  is  99^o  P^r  cent,  below  par,  and 
the  prices  of  commodities  were  as  ridiculously  high 
as  the  value  of  the  paper  was  pitifully  low.  A  man 
in  New  England  or  New  York  would  pay  five  hun- 
dred dollars  for  his  dinner,  and  never  ask  the  landlord 
to  reduce  the  bill.  I  heard  the  story  in  my  childhood 
of  a  certain  gentleman  well  known  in  those  parts, 
who  stuffed  his  sulky-box  with  continental  bills  and 
then  sallied  forth  to  purchase  a  cow! 

At  this  juncture  the  rudiments  of  a  better  system 
appeared.  For  nearly  a  hundred  years  the  Bank  of 
England  had  been  issuing  paper  payable  on  demand 
in  gold  and  silver.  Alexander  Hamilton  had  been 
a  close  student  of  English  history  and  of  English 
finance,  and  he  conceived  that  the  same  thing  might 
be  done  with  advantage  in  America.  In  1780,  when 
he  was  only  twenty-three  years  old,  he  wrote  a  letter 
to  Robert  Morris,  a  wealthy  and  influential  member 
of  the  Continental  Congress,  and  afterwards  the 
Continental  financier,  in  which,  after  showing  the 


ON  CURRENCY  IN  THE  UNITED  STATES.     325 

causes  of  the  depreciation  of  the  currency,  and  the 
necessity  of  a  foreign  loan,  he  furnished  a  matured 
plan  of  a  bank,  by  means  of  which  the  loan  might 
be  so  applied  as  to  reestablish  the  public  credit  and 
become  the  basis  of  a  redeemable  currency.     This 
was,  as  I  believe,  the  first  suggestion  of  a  banking 
institution  for  America.    Hamilton's  idea  was  briefly  i^^^y^^^M^'i  ri 
this :  Public  credit  there  was  none ;  an  established 
government  there  was  none;  the  Continental  Con- 
gress was  exercising  the  unlimited  functions  of  a 
revolutionary  government ;  under  these  circumstances 
the  only  way  to  create  public  credit  was  to  unite 
with  it  the  private  interests  of  moneyed  men.     Es- 
tablish then  a  bank  which  shall  be  the  fiscal  agent 
of  the   government;    obtain,   if  possible,   a   foreign 
loan,  and  deposit  it  in  cash  in  the  bank ;  let  half  the 
stock  of  the   bank  be  subscribed  by  wealthy  men, 
who  can  reasonably  look  for  a  fair  profit  on  their 
investment ;  let  government  hold  the  other  half  and  h      fj\     L 
have  half  the  profits  ;  then  let  the  bank  issue  bills  oni^y        f 
its  cash  basis,  consisting  of  the  loan,  the  private  sub-^'"*'^'^*^ 
scriptions,  and  the  product  of  the  Continental  taxesM<tR'>w»C.^^w# 
as  they  are  gradually  paid  in.     Thus  the  bank,  and  /v^,  i't^^^^t^ 
all  subscribers  to  its  stock,  and  all  holders  of  its  bills        '  *   " 
would  be  directly  interested  to  uphold  the  govern- 
ment and  its  credit.     Community  would  be  equally 
benefited,    since  it  would   have  a   relatively  sound 
paper  for  ordinary  commercial  purposes. 

Mr.  Morris  found  his  duties  as  Continental  finan- ,..,  ^ 

cier  sufficiently  embarrassing ;   and  in   the  fall   of  ' 
1781  brought  forward  a  scheme  for  a  national  bank,  ^^^J]' 
partially  embodying  on  a  small  scale  the  ideas  of     i^^-K . 
Hamilton.     Congress  sanctioned  the  plan,  and  the 


326  ELEMENTS  OF  POLITICAL  ECONOMY. 

Bank  of  North  America,  the  first  bank  in  this  coun- 
try, was  established  in  Philadelphia.  Mr.  Morris,  in 
behalf  of  the  general  government,  subscribed  nearly 
two  thirds  of  the  capital  stock  of  $400,000,  and  nat- 
urally took  the  entire  control  of  the  institution.  The 
reason  why  individuals  subscribed  so  little  is  to  be 
found  in  the  distrust  with  which  paper  money  of  all 
kinds  had  come  to  be  regarded.  Capitalists  did  not 
believe  there  would  be  any  dividends,  and  the  peo- 
ple were  afraid  the  paper  would  depreciate  in  their 
hands.  Under  these  unfavorable  circumstances  the 
bank  went  into  operation  in  January,  1782.  Every 
effort  was  made  to  produce  a  public  sentiment  favor- 
able to  the  credit  of  the  bank,  and  its  bills  were  the 
first  paper  handled  by  Americans  which  was  con- 
vertible into  coin  at  the  pleasure  of  the  holders. 
Being  made  receivable  at  the  Federal  and  State  treas- 
uries in  payment  of  taxes  and  duties,  and  being 
cautiously  issued  at  first,  the  hills  soon  came  into 
such  circulation  that  the  bank  was  able  to  declare 
dividends  on  its  stock  from  twelve  to  sixteen  per 
cent,  per  annum.  Who  ever  heard  of  capitalists 
who  could  resist  sixteen  per  cent?  The  bank 
opened  its  books  for  new  subscriptions,  and  the 
stock  went  up  without  difficulty  from  $400,000  to 
$2,000,000. 

We  must  here  dismiss  the  Bank  of  North  Amer- 
ica, the  parent  of  all  our  institutions  of  the  kind, 
with  the  remark  that,  although  it  was  chartered  by 
the  old  Congress  as  a  national  institution,  such 
doubts  were  entertained  of  the  competency  of  that 
body  to  incorporate  an  institution  within  a  State, 
that  a   charter  was   soon  after   procured  from  the 


ON  CURRENCY  IN  THE  UNITED  STATES.  327 

legislature  of  Pennsylvania;  and  also,  that  its  con- 
nection with  the  Continental  treasury  ceased,  on  the 
retirement  of  Mr.  Morris  from  the  office  of  financier. 
It  continued,  however,  as  a  State  bank ;  and  it  flour- 
ishes still  in  a  green  old  age  among  the  banking  con- 
cerns of  the  Quaker  City. 

Till  Mr.   Morris's  Bank  of  North  America  com- 
menced operations  January  4th,  1782,  all  the  paper 
that  had  been  issued  in  the  country,  whether  by  the 
colonies  as  such  or  by  the  central  authority  repre- 
sented at  first  by  the  revolutionary  government  and^^^ -^-^"""^^^^V^ 
afterwards  by  the  confederation,  was  irredeemable '^^^^^'^'=^'^*'^'*^ 
paper,  and   illustrated   the   universal   financial  law 
that  such  paper,  unless  issued  under  very  favorable 
circumstances  and  strictly  limited  in  quantity,  will 
depreciate  in  spite  of  everything.     The  bills  of  the'^  .u^^eAy*^ 
Bank  of  North  America  were  convertible  into  gold*^^  cj.^i'^^*^ 
and  silver  at  the  pleasure  of  the  holders,  and  they 
mark,  therefore,  an  epoch  in  the  monetary  history  of 
the  country.     Some  silver  coins  had  been  issued  in  |/^^/^  v^  A*-*^ 
Massachusetts  as  early  as  1652,  and  continued  to  befi^^^v^  ^?y^t~p^ 
struck  at  the  colonial  mint  for  about  thirty  years,  but       a***^->--«^- 
the  pieces  all  bear  the  dates  of  1652  or  1662;  and^^^*^^--^"^^^/ 
these  pieces,  now  known  and  prized  as  the  "  old  pine- 
tree  coinage,"  were  the  only  public  coins  of  any  de- 
scription minted  in  the  country  itself  until  after  the 
close  of  the  Revolutionary  war.    They  were  shillings, 
sixpences,  threepences,  and  twopences.     Both  silver 
and  copper  coins  were,  however,  minted  in  England 
for  the  use  of  the  colonies;  and  in  1722  a  patent 
was  issued  by  George  I.  to  one  William  Wood  to 
make  coins  for  colonial  use  out  of  pinchbeck,  in  pur-</^'^2.— -^  ^  ^ 
suance  of  which  he  had  the  conscience  to  make  thir-  f"-^-^-'^  *^C'/^m 


328  ELEMENTS  OF  POLITICAL  ECONOMY. 

teen  bright  shillings,  or  thereabouts,  out  of  a  pound 
of  brass.  It  is  refreshing  to  add  that  the  colonists 
had  the  sense  and  spirit  utterly  to  reject  Wood's 
money. 

On  the  15th  of  January,  1782,  Mr.  Morris  pre- 
sented to  the  old  Congress  the  first  plan  of  a  deci- 
u^A  j-M?  kia^/f  '^^l  coinage  ever  brought  forward.  There  are  three 
.^■,.Uv«^  c*c,.^v  possible  ways  of  arranging  a  decimal  system  of 
coinage :  first,  to  have  a  very  small  unit,  and  then 
proceed  only  by  decimal  multiplication  ;  second,  to 
have  a  very  large  unit,  and  then  proceed  by  deci- 
mal division  only;  and  third,  to  have  a  moderate 
unit,  and  then  proceed  decimally  in  both  directions. 
Mr.  Morris  proposed  as  the  unit,  but  not  as  a  coin, 
a  quarter  grain  of  pure  silver.  One  hundred  of  these 
units,  alloyed  with  two  grains  of  copper,  were  to  be 
the  lowest  silver  coin,  weighing  27  grains,  and  called 
a  cent;  500  of  them  were  to  make  a  quint;  and 
1,000  of  them  a  mark.  Mr.  Morris  afterwards  mod- 
ified this  plan,  thinking  the  unit  too  small,  and  pro- 
posed the  pound  as  the  unit  of  account,  assuming  it 
to  be  12s.  6d  sterling,  and  calling  that  1,000,  divided 
it  decimally  into  the  shilling  100,  the  penny  10,  and 
the  doit  1.  As  a  table  of  coins,  he  proposed  of  gold 
the  crown  1200  doits,  the  half-crown  600  doits ;  of 
silver  the  dollar  300  doits,  the  shilling  100  doits,  the 
g-rofl^^  20  doits ;  and  of  copper  the  copper  doit.  In 
all  this  there  is  a  recognition  of  the  advantages  of 
the  decimal  system  for  purposes  of  multiplication, 
and  an  equal  recognition  of  the  advantages  of  the 
duodecimal  system  for  purposes  of  division. 

Mr.  Morris  resigned  as  financier  in  1784,  and  the 
whole  subvert  Was  then   re^rred  to  Mr.  Jefferson, 


ON  CURRENCY  IN  THE  UNITED  STATES.    32\ 

whose  decimal  plan  was  adopted  by  the  old  Con-  %^iLjs,.^.^,^^^ 
gress  in  1786,  and  consisted  of  both  denominations  . 
and  coins  called  eagles^  dollars^  dimes^  and  cents,^ 
Each  of  these  was  to  be  subdivided  into  halves,  and 
the  dime  w^as  also  to  be  doubled.     In  this  scheme, 
accordingly,  the  binary  system  is  recognized  equally 
with  the  decimal.     In  1786  also,  an  actual  coinage 
of  copper  cents^  a  denomination  first  suggested  hy-f-i^y^  (u»^^^ 
Morris,  but  first  proposed  by  Jefferson  as  the  lOOth^"^  ^^ 
of  a  dollar,  took  place  under  State  authority  in  Ver-  v 

mont,  in  Connecticut,  and  in  New  Jersey ;  and  Con- 
gress also  authorized  the  establishment  of  a  mint, 
and  the  next  year  contracted  for  300  tons  of  Federal 
copper  cents  to  be  struck.  These  cents  were  coined 
at  the  Connecticut  mint  in  New  Haven,  and  a  few 
of  them  at  the  Vermont  mint  in  Rupert. 

When  government  went  into  operation  under  the 
present  constitution,  in  1789,  the  action  of  the  old 
Congress  was  reported  to  the  new,  and  the  matter  ..     , 
was  referred  to  Alexander  Hamilton,  the  first  Sec-.T*''^''^'^,  r^ 
retary  of  the  Treasury.     He  made  an  elaborate  re-^"^*" "  '^         ^ 
port  on  the  Mint  and  the  Coins,^  adopted  the  dollar 
as  the   unit,  but  claimed  that  it  should  not  be  at- 
tached to  gold  or  silver  exclusively  but  to  both,  pro- 
posed that  24.75  grains  of  pure  gold,  or  371.25  grains ,^^t) a*v  ^-ju.^ 
of  pure  silver  should  be  a  dollar,  and  that  the  alloy    X^^^^^-— t>u.~- 
in  both  cases   should  be  t^^th,  making  the  unit  27^'""  * 
grains   of  standard  gold   and  405  grains  of  stand- 
ard silver.     The   Act  of  1792  established    a    mint, 
and  regulated  the  coins  substantially  in  accordance 
with  the  recommendations  of  the  Secretary.     The 
coins  were  to  be  the  eagle,  the  half-eagle,  and  the  ^  "^^^^'^^  ■- 

1  See  Hamilton's  Works,  yol.  iii.  p.  149,  et  seq. 


330  ELEMENTS  OF  POLITICAL  ECONOMY. 

quarter-eagle  in  gold  ;  the  dollar,  half-dollar,  quarter- 
dollar,  dime,  and  half-dime  in  silver;  the  cent  and 
half-cent  in  copper.  The  weight  of  the  eagle  was 
to  be  270  grains,  alloyed  one  part  in  twelve;  and 
that  of  the  silver  dollar  416  grains,  alloyed  so  as  to 
be  .8924  fine.  The  subdivisions  of  these  coins  were 
to  be  in  all  respects  proportional  to  their  units.  It 
will  thus  be  noticed  that  the  credit  of  first  introduc- 
ing a  decimal  system  of  money  is  due  not  to  one 
man  but  to  three ;  that  all  three  of  the  possible  ways 
of  arranging  such  a  system  were  recommended  in 
turn,  and  the  third  finally  adopted ;  and  that,  while 
the  undoubted  superiority  of  the  decimal  system  in 
an  upward  scale  is  fully  recognized,  the  natural  ten- 
dency of  men's  minds  to  subdivide  into  halves,  quar- 
ters, eighths,  and  so  on,  rather  than  into  tenths,  hun- 
dredths, and  so  on,  is  recognized  also.  Eighty  years 
have  not  yet  naturalized  among  us  the  dime  and 
mill,  nor  expelled  the  York  shilling,  the  eighth  of  a 
dollar.  Dollars  and  cents  make  an  admirable  money 
of  account,  but  the  decimal  subdivisions  of  these 
are  unnatural  and  have  never  come  into  much  use. 
The  true  convenience  is  reached  through  a  combina- 
tion of  the  binary  and  decimal  systems.  The  half- 
dollar  is  more  convenient  than  the  dime,  and  the 
quarter  than  the  mill ;  and  I  think  that  coins  of  the 
eighth  and  sixteenth  of  a  dollar  would  perhaps  be 
useful  in  connection  with  those  we  now  have. 

It  may  be  asked  how  we  came  to  have  the  dollar 

^r'x^v*    as  the   unit  of  our    monetary   system.     The   word 

dollar  is  derived  from  a  German  word  which  means 

valley^  and  was  first  applied  to  coins  in  the  mining 

region  of  Bohemia,  at  a  place  called  Joachimsthal, 


ON  CURRENCY  IN  THE  UNITED  STATES.  661 

where  silver  pieces  of  one  ounce  weight  were  coined 
about  1520,  and  were  called  Joachimsthaler,  and 
then  for  shortness  thaler,  whence  dalera  in  Span-  >^£^^  ^ 
ish,  and  in  English  dollar.  The  thaler  remained  2iS&>^ix 
German  money  of  account  till  1872,  and  the  Span- 
ish milled  dollar  became  so  famous  in  the  world  of 
commerce,  and  so  familiar  to  our  fathers  in  their 
dealings  with  the  West  Indies  and  the  Spanish 
American  colonies,  that  our  statesmen  recommended, 
and  our  Congress  adopted  it  as  the  best  known  and 
most  convenient  unit  of  money.  It  is  hardly  neces- 
sary to  add  that  dime  is  a  corruption  of  the  Latin 
decern,  ten  ;  that  cent  is  a  contraction  of  the  Latin 
centum,  hundred  ;  and  that  mill  is  a  contraction  of 
the  Latin  mille,  thousand. 

There  was  a  curious  debate  in  Congress  at  the 
time  as  to  the  devices  which  the  coins  should  bear.  .  - 
As  the  bill  came  from  the  Senate,  where  it  orig- 
inated, the  gold  and  silver  pieces  were  to  have  on 
one  side  the  figure  of  the  eagle,  which  the  Continen- 
tal Congress  long  before  had  adopted  as  the  national 
emblem,  and  near  this,  the  legend  "  United  States 
of  America."  This  was  for  the  obverse  of  the  coin, 
and  so  far  nobody  had  any  objection.  For  the  re- 
verse, the  bill  proposed  that,  in  accordance  with  the 
usages  of  all  nations  from  the  time  of  the  earliest 
known  coinage,  the  impression  or  representation  of 
the  head  of  the  President  of  the  United  States  for 
the  time  being,  together  with  his  name,  order  of  suc- 
cession in  the  presidency,  and  the  date  of  the  coin- 
age, should  be  stamped.  This  was  strongly  objected 
to  in  the  House,  as  savoring  of  monarchy.  The 
President's  head  on  the  coin  was  deemed  by  some  a 


332  ELEMENTS  OF  POLITICAL  ECONOMY. 

dangerous  thing  for  the  republic,  and  the  proposal 
led  to  a  sarcastic  and  even  acrimonious  debate,  and 
was  at  length  defeated  in  the  House  by  a  vote  of 
twenty-six  to  twenty-two,  in  which  the  Senate  was 
afterwards  obliged  to  concur,  and  a  proposition  made 
by  Key  of  Maryland  was  carried,  to  substitute  a  fig- 
ure of  Liberty  instead  of  the  obnoxious  head  of  the 
President ;  but  under  precisely  what  sort  of  a  figure 
to  represent  Liberty  was  then  the  difficulty,  and  at  the 
next  session  Elias  Boudinot  of  New  Jersey,  after- 
wards the  director  of  the  mint,  endeavored  to  get 
substituted  for  the  emblematic  figure  of  Liberty  the 
head  of  Columbus,  but  in  vain  ;  the  Republican  party 
was  bound  that  the  figure  of  Liberty  and  no  other 
should  go  on  the  coins,  and  it  went  on,  and  we  have 
here  the  history  of  that  benignant  looking  lady, 
whose  pretty  face  we  used  to  see  familiarly  enough 
before  the  war,  and  whose  acquaintance  we  hope  to 
resume  in  the  good  time  coming. 
iu;y  ■^-M.^.c.^j.  The  Mint  of  the  United  States  was  established  at 
j^Vi>C.jyr  171^  Philadelphia  in  1792,  and  the  first  federal  coins  of 
silver  were  issued  in  1794,  of  gold  in  1795.  While 
it  was  still  doubtful  where  the  ultimate  seat  of  the 
xJ^c-i  (Kt^^  _ ,  '  national  government  would  be  placed,  the  citizens  of 
that  beautiful  city  were  strongly  in  hopes  of  being 
able  to  persuade  Congress  permanently  to  abide  in 
their  town,  in  which  the  old  continental  body  had 
first  met,  in  which  Independence  had  been  declared, 
and  which,  more  than  any  other,  was  popularly  re- 
garded as  the  head-quarters  of  the  national  Union. 
A  notable  instance  of  log-rolling  legislation,  the  first 
in  our  history,  transferred  the  capital  of  the  country 


-W' 


ON  CURRENCY  IN  THE  UNITED  STATES.     ^33 

to  the  banks  of  the  Potomac ;  but  the  good  people 
of  the  Quaker  City  have  nevertheless  always  retained 
the  Mint,  as  a  memorial  of  their  earlier  position  in 
the  history  of  the  government.  By  the  law  of  1873, 
the  mints  at  Philadelphia,  San  Francisco,  Carson,  A*^*^^^ 
and  Denver,  become  separate  establishments,  under 
a  bureau  of  the  Treasury  Department.  The  term 
"  branch  mint "  is  abolished  ;  and  the  assay  offices 
for  the  stamping  of  bars,  as  well  as  the  mints  for  the 
manufacture  of  coin,  are  responsible  to  this  bureau, 
whose  chief  officer  is  styled  the  Director  of  the  Mint. 
This  designation  was  originally  given  to  the  chief 
officer  at  Philadelphia;  and  David  Rittenhouse,  an  ^3Utt.«^ 
ingenious  and  self-taught  mathematician,  who  had 
run  several  years  before,  by  the  help  of  instruments 
all  of  his  own  construction,  the  most  difficult  part 
of  Mason  and  Dixon's  line,  was  the  first  appointed 
to  this  post.  ^^^  ^^4,^ 

The  act  of  Congress  established  the  ratio  of  one.^i£f/^*^*^ 
to  fifteen  as  the  relative  value  of  gold  in  silver  to  be  '"    /  r^  ' 
maintained  at  the  Mint ;  but,  from  this  clause  of  the 
law,  there  followed  important  consequences,  which ^,,     / 
were  not  foreseen,  since  that  was  not,  at  least  in 
America,  the  true  ratio  of  their  value  at  that  time, 
and  being  a  decided   under-valuation  of  gold,  the 
gold  coinage  came    into  very  little  circulation.     It 
was  really   worth  more  by  the  ounce  than  fifteen 
ounces  of  silver,  was  accordingly  worth  more  out  of 
the  circulation  than  in  it,  and  was  therefore  exported 
in   preference  to  silver  in   payment  of  foreign  bal- 
ances, especially  after  France  had  changed  the  rela- /^^T,^ ^^ 
tive   legal  value   to    one   to   fifteen    and    one    half. 
Thereafter  an  ounce  of  gold  was  worth  in  silver  three 


334  ELEMENTS  OF  POLITICAL  ECONOMY. 

and  one  third  per  cent,  more  abroad  than  here,  and 
of  course  the  gold  refused  to  circulate  in  the  home 
currency,  giving  us  another  neat  illustration  of  the 
economical  law  that  the  cheaper  money  will  push 
the  dearer  out  of  circulation. 

After  a  long  while  the  attention  of  Congress  was 

f  u^.,  rv   ''•'^-  pgiig^  j-Q  ^^jig  circumstance,  and  a  law  was  passed  in 
1834  substantially  rating  gold  in  relation  to  silver  at 

jr^  y  / :  '^  one  to  sixteen.  The  weight  of  the  eagle  was  re- 
duced from  270  grains  to  258,  and  the  alloy  increased 
to  one  part  in  ten  from  one  part  in  twelve.  This 
increased  at  one  jump  the  legal  valuation  of  gold 
6.58  per  cent,  as  compared  with  silver,  which  re- 
mained as  before.  But  this  in  turn  was  an  over- 
valuation of  gold  ;  and  the  working  of  the  natural 
law  became  immediately  apparent,  by  which  the  cur- 
rent of  the  metals  was  reversed,  silver  now  passing 
in  preference  to  Europe  to  liquidate  the  balances  of 
trade,  and  gold  beginning  to  come  to  the  United 
States,  where  it  was  now  3.22  per  cent,  dearer  in 
silver  than  in  Europe.  In  1837,  the  standard  of 
nine  tenths  fine  was  applied  to  silver  also,  and 
this  increased  fineness  necessitated  a  change  in  the 
weight  of  the  silver  coins,  if  the  relation  of  one  to 
sixteen  was  to  be  maintained.  Accordingly  the 
weight  of  the  silver  dollar  was  reduced  from  416 
grains  to  412J,  making  just  371.25  grains  of  fine 
silver  in  the  dollar.  There  has  been  no  change  in 
the  gold  dollar  since  1834,  and  no  change  in  the 
silver  dollar  since  1837,  but  the  smaller  silver  coins 
cVj'*.  ^^^^  ^^^^  still  further  reduced  in  weight,  as  we  shall 
see. 

In  1853  the  disadvantages  of  Hamilton's  double 
standard    had    become   apparent;    experience   had 


ON  CURRENCY  IN  THE   UNITED   STATES.  335 

proven  that  the  relative  value  of  the  two  metals  was  y^  \  Lc 
not  constant  but  variable;  and  it  was  then  deter-^^^^^^^^^^^ 
mined  to  make  gold  alone  the  legal  tender,  except  in ,  Ll^^— - 
sums  below  $5,  and  to  reduce  the  weight  of  the 
silver  half  dollar  and  its  subdivisions,  so  that  their 
nominal  value  should  be  considerably  above  their 
real  value,  and  their  exportation  be  thus  prevented. 
The  half  dollar  was  reduced  from  206|^  to  192  grains, 
and  the  smaller  coins  proportionally.  A  silver  dollar 
weighs  371.25  grains,  a  dollar  in  parts  weighs  345.6, 
and  accordingly  a  dollar  is  worth  7.42  per  cent,  more 
than  a  nominal  dollar's  worth  of  the  smaller  pieces. 
The  relative  value  of  gold  in  silver  is  now  1  to  15.6;  /  '- ' 
a  gold  dollar,  therefore,  weighing  23»22  grains  pure, 
is  worth  2.43  per  cent,  less  than  a  silver  one,  and 
4.81  per  cent,  more  than  a  dollar  in  small  silver. 
The  result  of  these  measures  was  to  establish  gold 
as  the  standard  of  value,  and  to  make  silver  sub- 
sidiary to  that.  The  refusal  of  the  silver  piece  to 
circulate  under  these  circumstances  is  another  illus- 
tration of  the  law  already  so  often  referred  to.  A 
new  silver  trade-dollar  is  authorized  by  the  law  of 
1873,  for  export  purposes  only. 

At  different  times  new  coins  have  been  added  to 
our  series,  but  they  have  not  proved  to  be  of  much 
importance;  of  gold,  the  double-eagle,  the  three- 
dollar,  and  the  one-dollar  piece ;  of  silver,  only  the 
three-cent  piece  ;  and  of  copper,  the  five,  three,  and 
two-cent  pieces.  By  the  law  of  1873,  the  two-cent 
piece  is  abolished.  The  one-cent  piece  is  95  parts 
copper  and  5  tin-zinc ;  the  three  and  five  cent  pieces 
are  75  parts  copper  and  25  nickel ;  and  debts  of  four 
cents  can  be  paid  in  one-cent  pieces,  of  sixty  cents 


336  *    ELEMENTS  OF  POLITICAL  ECONOMY. 

in  three-cent  pieces,  and  of  one  dollar  in  five-cent 
pieces.  The  last  are  minted  after  the  French  metric 
system,  weighing  precisely  five  grammes,  and  five  of 
them  laid  along  in  order  measuring  exactly  a  deci- 
metre in  length.  This  was  the  first  official  recogni- 
tion, embodied  in  act,  of  the  excellence  of  the  metric 
system. 

Besides  the  Bank  of  North  America,  two  others 

,^  nl-^i-.  V;  had  been  established,  the  Bank  of  New  York  in  New 

York,  and   the  Bank  of  Massachusetts  in   Boston, 

when  the  present  government  went  into  operation  in 

1789.  Their  circulation  was  mostly  confined  to  the 
cities  in  which  they  were  located.  In  pursuance  of 
the  duty  of  his  office  as  Secretary  of  the  Treasury, 
Hamilton  also  presented  to  Congress  in  December, 

1790,  his  celebrated  report,  recommending  the  estab- 
v^sy*.-.  f'*o4^x  lishment  of  a  Bank  of  the  United  States.  In  this 
.,.jhi  ^W:  v-v-At  j.gpQj.|;^  which  at  once  gave  Hamilton  a  European 

reputation,  two  points  were  specially  argued  :  first, 
that  such  an  institution  would  afford  through  its  bills 
great  facilities  to  trade  and  to  domestic  exchanges  ; 
and,  second,  would  furnish  the  new  government  a 
convenient  paper  medium  for  its  monetary  transac- 
tions, and  be  a  resource  for  temporary  loans.  The 
first  point  respected  the  people,  the  second  the  gov- 
ernment. 

There  can  be  no  doubt,  I  think,  that  in  the  circum- 
stances of  that  time  a  national  bank  was  expedient 
and  beneficial.  There  was  then  no  confidence,  no 
^'  '^*^  credit,  no  currency,  and  no  commercial  relations  es- 
tablished with  foreign  nations  by  which  gold  and 
silver  could  flow  into  the  country.  As  an  institution 
of  loan,  the  bank  gave  credit  to  the  extent  of  its 


''>u  •vu; 


ON   CURRENCY   IN   THE   UNITED   STATES. 


b31 


fl- 


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means  to  all  who  had  good  security  to  offer.  As  an 
institution  of  circulation,  it  furnished  a  convenient, 
a  convertible,  and  a  national  money.  As  a  govern- 
mental fiscal  agent,  government  could  borrow  of  it 
on  an  emergency,  and  pay  at  its  leisure  from  the 
proceeds  of  the  imposts  and  taxes.  The  fullest  ac- 
knowledgment, however,  of  the  benefits  of  such  an 
institution  at  that  time  does  not  at  all  commit  one 
to  the  defence  of  any  such  institution  now.  Cir- 
cumstances have  utterly  changed.  No  well-estab- 
lished national  government  can  afford  to  add  to  its 
many  and  higher  functions  the  delicate  duty,  so 
much  more  appropriate  to  private  bankers,  of  loan- 
ing money  to  the  people  on  interest  according  to  its 
notion  of  their  solvency ;  and,  in  a  republic  especially, 
where  hostile  parties  alternately  administer  the  gov- 
ernment, loans  would  be  sure  to  be  made  for  parti- 
san purposes,  and  corruption  find  the  bank  a  ready 
tool. 

The    constitutionality   of    Hamilton's    plan   was 
stoutly  denied  in  Congress.     The  first-rate  abilities  /Jmp  (^^^-^^^ 
and  growing  reputation  of  that  eminent  statesman   '  ^^Jcii-s^  U 
had  already  awakened  jealousies  both  in  Congress  ^^^^^0 
and  in  the  cabinet.     Nevertheless,  a  bill,  in  substan- 
tial  accordance   with    the  views   of  the    Secretary, 
passed  both  houses  by  large  majorities.     Washing- 
ton, before  signing  it,  required  the  written  opinion 
of  his  cabinet  on  the  question  of  constitutionality. 
Hamilton  and  Knox  took  the  affirmative ;  Jefferson 
and  Randolph  the  negative;  the  President,  as  often, 
sided  with  Hamilton,  and  signed  the  bill. 

On   New  Year's  day,  1853,  I  had  the  great  per- 
sonal pleasure  of  calling  on  the  widow  of  Alexan- 

22 


338  ELEMENTS  OF  POLITICAL  ECONOMY. 

der  Hamilton,  who  survived  him  just  fifty  years. 
Turning  the  conversation  on  her  husband's  connec- 
tion with  the  government,  the  old  lady  remarked 
with  enthusiasm,  —  "  My  husband  gave  you  a  bank, 
Jefferson  thought  we  ought  not  to  have  any  bank, 
and  Washington  rather  thought  so,  too;  but  my  hus- 
band said  we  must  have  a  bank ;  and  one  day  he 
said  to  me,  '  My  dear,  you  must  sit  up  with  me  to- 
night, and  write  for  me;'  and  I  sat  up  all  night,  and 
I  wrote  it  out  with  my  own  hand,  and  the  next 
morning  he  carried  it  to  Washington,  and  we  had  a 
bank ! "  This  last  was  pronounced  not  without  ex- 
ultation. 

With  a  charter  that  was  to  run  twenty  years,  with 
a  capital  stock  of  $10,000,000,  $8,000,000  of  which 
U  Vi      n.     ^^^  subscribed   by  individuals,   and   $2,000,000  by 
-      ,    "        the  United  States,  and  the  whole  of  which  was  sub- 
F       '  scribed?  with  a  surplus,  within  a  few  hours,  the  first 

United  States  Bank  went  into  operation  at  Phila- 
delphia, in  July,  1791.     Notice  this  feature  of  the 
stock.     Hamilton    had  just  before    persuaded    Con- 
gress to  assume  the  State  debts  incurred  in  the  war 
of  the  Revolution,  and  to  fund  them,  together  with 
the  certificates  of  the  public  debt,  into  one  new  and 
"^^    .     compact  debt.     Three  fourths  of  the  subscription  of 
^        /^  individuals  to  the  bank  stock  must  be  in  these  new 
C  Uy,*uHV  government  stocks  which  bore   six  per  cent.     The 
iL>t>L^O.  demand  for   them,  thus  created,   brought  them  in- 
}   <i  V^stantly  up  to  par ;  so  that  the  bank  was  made  a 

H.  >^t/H^.  means,  incidentally,  of  establishing  the  credit  of  the 
United  States,  —  all  its  paper  was  now  at  par.  This 
splendid  success  of  Hamilton's  financial  schemes, 
together  with  the  unexpected  income  from  the  new 


ON  CURRENCY  IN  THE  UNITED  STATES.     339 

tariff,  accounts  in  part  for  the  immense  popularity 
of  the  man;  and  justifies  the  strong  expression  of 
Daniel  Webster,  who  said,  on  one  occasion,  that 
Alexander  Hamilton  raised  the  public  credit  of  the 
United  States  from  the  dead. 

During  twenty  years,  the  term  of  its  charter,  the  ((\l^i^^^^  ^ 
operation  of  the  first  United   States  Bank  appears  ^^ 
to  have  been  healthful  and  beneficent.     It  furnished 
a  paper  money  secured  by  government  stocks  and 
by  cash  that  was  current  at  a  uniform  value  all.  over 
the  country ;  its  loans,  under  the  circumstances  of 
the  time,  gave  a  sharp   spur  to  industry  and  com- 
merce;  while  its  dividends  to  stockholders  never  fell  ^^^^^^^"^ 
below  eight,  and  frequently  rose  to  ten  per  cent.     W-l^^^  i^-t^^' 
is  not  to  be  wondered  at,  therefore,  that  as  the  time>v;.-K^^^  \ 
approached  for  the  charter  to  expire,  the  stockhold- 
ers were  anxious  for  a   renewal.     They  applied  ior ^^^j^^^jjz>- 
such  renewal,  offering  to  pay  the  government  a  mill- ^^-^^^^^^;.,^^ 
ion  and  a  quarter  for  the  privilege  of  continuance. 
It  was  alleged  against  the  bank,  on  the  other  hand, 
that  the  stock  was  now  largely  owned  by  foreigners, 
which  was  true ;  and  that  the  directors  had  some- 
times made,  or  withheld,  loans,  for  party  purposes, 
which  was  doubtful.     The  real  cause  of  the  opposi-  j^j^  ^c^^^i^ 
tion  to  the  renewal  of  the  charter  was  this:  Instead ^^^^^tj^^^ 
of  the  three  State  banks  in  existence  when  the  na- 
tional  institution   was   chartered,   there   were   now 
(1811)  eighty-eight  State  banks,  in  some  of  which 
the  States   as    such  held  stock.     These  banks  and 
their  friends    supposed  that  it  would  be  for  their 
interest  that  the  national  bank  should  go  out  of  be-/r^^     yt^ 
ing;  that,  in  that  case,  they  should  obtain  the  cus- ^      L^ 
tody  and   management  of  the  national   funds,  and 


340  ELEMENTS  OF  POLITICAL  ECONOMY. 

furnish  ine  country  the  currency,  which  the  national 
institution  had  furnished.  The  charter  was  defeated, 
in  the  House  by  one  vote,  and  in  the  Senate  by  the 
casting  vote  of  the  Vice-President,  George  Clinton. 
The  bank  was  obliged  to  wind  up  its  affairs.  It  did 
so  speedily  and  honestly.  This  was  in  1811. 
'  Undoubtedly  the  paper  of  the  first  national  bank 
was  very  fair  money,  and  certainly  superior  to  the 
bills  of  the  new  State  banks,  for  the  creation  of 
which  there  was  a  sort  of  mania  in  the  country  so 
soon  as  it  was  ascertained  that  the  national  institu- 
tion could  not  be  rechartered.  Many  of  these  went 
into  operation  on  the  strength  of  little  or  no  bona 
fide  capital.  They  issued  their  notes  freely,  and 
the  chasm  caused  by  the  withdrawal  of  the  national 
circulation  was  soon  filled  up,  and  more  too.  As  a 
J  necessary  consequence,    the  whole   circulating   me- 

^^'  dium  became  depreciated,  and   the   currency  came 

into  dreadful  disorder  throughout  the  country.  In 
the  fall  of  1814,  there  was  a  general  stoppage  of  all 
the  banks  in  the  United  States,  except  those  in  New 

Lvi.fi  'K^ii  J.  England.  The  notes  of  the  New  York  city  banks 
were  ten  per  cent,  telow  par;  those  of  Philadel- 
phia, eighteen  ;  of  Baltimore,  twenty ;  of  Pittsburg, 
twenty-five.  All  this  illustrates  the  simple  financial 
truth,  that  money  is  not  a  commodity  of  which  an 
unlimited  quantity  can  be  absorbed  by  business,  but 
is  an  instrument  for  a  certain  specific  purpose, — 
namely,  to  facilitate  the  exchange  of  existing  com- 
modities and  of  services  all  ready  to  be  exchanged, 
and  only  waiting  for  the  presence  of  the  medium 
to  consummate  the  transfer;  and  whenever  more 
than  enough  for  this  purpose  is  put  out,  whether  it  be 


ON  CURRENCY  IN   THE  UNITED    STATES.  341 

specie  or  paper,  a  diminution  in  value  of  every  part 
of  it  is  inevitable;  on  the  same  principles  precisely 
as,  when  the  market  is  permanently  overstocked 
with  sewing-machines,  there  will  be  an  inevitable 
decline  in  their  value.  Money  is  good  for  the  pur- 
pose for  which  it  was  invented,  and  useless  for  any 
other. 

In  this  state  of  things  Mr.  Dallas,  then  Secretary 
of  the  Treasury,  recommended  to  Congress  the  estab-,;  ^,  ^..^  ^^^^^ 
lishment  of  a  new  United   States  Bank,  modelled  .^-v^-j^  ^  ^>^ 
after  the  first,  with  a  charter  for  twenty  years,  with  a  :^^t>  ^I2.i^' 
capital  stock  of   $35,000,000,  the  bank  to  pay  the        f  ^.^ 
government  a  bonus  of  a  million  and  a  half  for  the 
privilege  of  coming  into  being.     It  was  thought  that 
a  strong  central  and  national  institution,  on  which 
the  State  banks,  now  increased  in  number  to  two 
hundred  and  forty-six,  might  lean  for  support,  would 
enable  them  shortly  to  resume  specie  payments,  and 
to  go  on  thereafter  on  better  principles.     The  bill 
organizing   the   bank  was   engineered   through   the 
House  by  John  C.  Calhoun.     It  went  into  operation 
in  1816,  just  after  the   close  of  the  last  war  with 
England,  when  the  reviving  enterprise  and  enlarged 
business  of  peace  seemed  to  open  up  before  it  a 
prosperous  career.  * 

The  new  bank  was  not,  however,  at  first,  fortunate  <  .  , 
in  its  management.  It  pushed  its  paper  into  circu-  "^ 
lation  with  reckless  eagerness.  In  the  course  of  one 
month  it  increased  its  discounts  from  three  to  twenty 
millions,  and  in  nine  months  its  discount  line  was 
thirty-three  millions.  The  results  were  what  might 
have  been  expected, — prices  universally  high,  a  spirit 
of  speculation  everywhere  rife,  and  gold  leaving  the 


842  ELEMENTS  OF  POLITICAL  ECONOMY. 

country  by  shiploads.  The  bank  soon  fell  into 
difficulties,  and  public  opinion  turned  more  or  less 
against  it.  Although  under  the  abler  and  more 
careful  management,  first  of  Langdon  Cheves,  and 
then  of  Nicholas  Biddle,  the  bank  recovered  its  sta- 
bility, it  never  enjoyed  quite  the  same  confidence 
and  credit  as  the  first  bank. 

This  was  not  wholly  its  own  fault ;  for  in  1829, 
seven  years  before  its  charter  was  to  expire,  Andrew 
Jackson  commenced  his  famous  contest  with  the 
bank,  which  he  kept  up  without  intermission  till  the 
charter  expired  in  1836.  Under  this  presidential  and 
consequent  congressional  fire,  the  bank  can  hardly 
be  said  to  have  had  a  fair  chance.  Andrew  Jackson 
had  sworn  its  death  by  the  'tarnal — his  usual  oath  — 
and  Andrew  Jackson  was  not  a  man  to  be  thwarted. 
In  his  annual  message  in  1829,  he  gave  the  directors 
fair  warning  that  there  would  be  "  constitutional 
difficulties"  in  the  way  of  their  securing  any  exten- 
sion of  their  privileges,  and  in.  1832  he  vetoed  the 
bill  to  recharter  the  bank.  The  next  step  was  to 
remove  from  the  custody  and  management  of  the 
bank  the  public  moneys.  Three  years  .before  the 
charter  expired  he  requested  Mr.  McLane,  the  Secre- 
tary of  the  Treasury,  to  remove  the  national  funds 
from  the  custody  of  the  bank,  and  to  place  them  in 
certain  selected  State  banks.  Mr.  McLane  declined 
to  order  the  removal.  Whereupon  Mr.  Duane  of 
New  York  was  appointed  to  the  treasury.  But  Mr. 
Duane,  no  more  than  his  predecessor,  could  see  his 
way  clear  to  remove  the  deposits.  When  made  to 
understand  that  it  was  the  determination  of  the 
President  to  have  them  removed  at  all  hazards,  he 


ON  CURRENCY  IN  THE  UNITED  STATES.    343 

explicitly  refused  to  lend  himself  for  the  purpose. 
The   President  removed  Mr.  Duane,  and  appointed 
Roger  B.  Taney,  the  late  Chief  Justice,  as  Secretary 
of  the  Treasury.    He  proved  more  flexible  to  the  will 
of  power,  and  immediately  gave  the  required  order. 
The  consequences  of  this  step  in  the  circumstances ^//Z. w 
were  immense  and  mischievous.     The  discount  line^^^~^     "  > 
of  the  bank  was  at  the  moment  over  $60,000,000.     y   , 
The  public  deposits  were  $10,000,000.     The  sudden"^        ' 
withdrawal  of  this   sum    affected  credit  and  disar- 
ranged business  to  a  remarkable  degree,  and  caused 
intense  excitement  all  over  the  Union. 

The  next  movement  in  the  "  great  experiment,"  as  , 

it  was  sarcastically  called  in  the  politics  of  the  day,^|^  «^~^^^ 
was  the  issue  of  the  famous  specie-circular,  which Cc«i ^.-^^ 
directed  "the  receivers  of  the  public  money  to  take 
nothing  but  gold  and  silver  in  payment  of  the  public 
lands.  Speculators  and  others  had  been  making 
large  purchases  of  western  lands,  expecting  to  pay 
in  paper  money.  The  specie-circular  came  upon 
them  like  a  clap  of  thunder.  Their  consternation 
was  vast,  and  the  circular,  coming  as  it  did,  shortly 
after  the  removal  of  the  deposits,  made  confusion 
worse  confounded. 

General  Jackson  went  out  of  office,  and  the  second 
bank  went  out  of  being  the  same  year ;  but  the^^'^'^'^'''-;;^'^^  *^ 
inaugurated  movement  was  completed  by  Mr.  Van  ^*^ 
Buren,  who  effected  the  complete  divorce  of  the 
government  from  all  banks  and  fiscal  agents  what- 
ever, first,  by  directing  the  State  banks  which  now 
had  the  keeping  of  the  public  moneys,  to  distribute 
them  as  surplus  revenue  among  the  States ;  and,  by 
the  sub-treasury  scheme,  in  pursuance  of  which  the 


344  ELEiMENTS  OF  POLITICAL  ECONOMY. 

United  States  received  in  payment  of  all  dues,  and 
paid  out  in  all  disbursements,  gold  and  silver  only. 
I  believe  in  gold  and  silver  money,  or  their  equiv- 
alent in  representative  paper  which  can  be  instant- 
ly converted  into  them,  and  do  not  question  the 
patriotic  aims  of  the  administrations  concerned,  but 
there  was  something  headlong  and  violent  in  this 
transition  from  the  traditional  policy  of  the  govern- 
ment to  the  new  system. 

From  1836  to  1862  there  was  no  national  money 
tWt^-1*!-'     in  the  United  States,  except  the  coin  ;    the  paper 
currency  was  furnished  by  a  number,  increased  at 
last  to  over  fifteen  hundred,  of  joint-stock  banking' 
companies,  under  the  sole  authority  of  the  States. 
These,  under  various  and  often  conflicting  regula- 
tions, manufactured  and  issued  money  for  -the  peo- 
ple.    This  money,  as  a  whole,  was  never  a  safe,  a 
uniform,  an  economical  currency.     It  was  subject  to 
♦^f^'jA^tO'-ralternate  contractions  and  expansions  which  spoiled 
-^'    •   -^      it  as  a  measure  of  value.    It  was  never  able  to  stand 
^ lH*w^»vfU4^jjg  gjjock  of  the  commercial  crises  which  it  power- 
/  fully  contributed  to  bring  on.     Money  is  an  imple- 
ment, and  a  costly  implement,  and  the  functions  it 
has  to  perform  cannot  be  performed  by  cheap,  penny- 
wise,  pound  -  foolish   substitutes. 

When  Secretary  Chase  assumed  the  Treasury  De- 
\    fttU        P^^ti^snt  in  the  spring  of  1861,  the  state  of  the  coun- 
try, and,  of  consequence,  the  state  of  the  finances, 
were  appalling.    Mr.  Buchanan's  administration  had 
.-^)Wwj,\ust  been  trying  to  borrow  a  few  millions  of  dollars 
'  of  the  people,  and  had  only  succeeded  in  securing  a 
very  small  sum,  and  that  at  the  enormous  rate  of 
twelve  per  cent,  interest.     The  clouds  of  war  which 


f  o- 


ON  CURRENCY  IN  THE  UNITED  STATES.    345 

bad  been  gathering  black  and  sullen  all  the  winter, 
soon  broke  in  wrathful  peals  over  the  head  of  the 
new  administration.  The  country  must  be  defended, 
as  well  as  the  ordinary  expenses  of  the  government 
met ;  an  army  must  be  raised,  equipped,  put  into  the 
field,  and  paid.  We  do  not  propose  to  follow  the 
Secretary  in  his  general  financial  embarrassments, 
expedients,  and  resources;  but  it  is  needful  to  our 
present  purpose  to-  say  that,  owing  to  the  unexpected 
delays  and  disasters  of  the  war,  and  to  the  conse- 
quent want  of  confidence  in  the  public  mind,  he 
found  it  extremely  difficult  to  borrow  the  sums  ne- 
cessary to  be  had  in  order  to  meet  the  expenditures 
of  the  government ;  and  that  in  his  first  annual  ^^ 
report  to  Congress,  in  December,  1861,  he  recom-  "  *^^V^, 
mended,  principally  for  the  sake  of  facilitating  the 
negotiation  of  loans,  the  organization  of  banking 
associations,  whose  circulation  should  consist  only 
of  notes,  uniform  in  character,  furnished  by  the  gov- 
ernment, and  secured  as  to  convertibility  into  coin 
by  United  States  bonds  deposited  in  the  treasury.  ^-♦^  igixu^ 
It  is  clear  that  if  such  associations  should  be  formed,  ^-tt/y^^uA^  ^^ 
it  would  make  a  market  for  the  national  bonds  to  ■^^%.9^ , 
the  extent  in  which  they  should  invest  their  capital 
stock  in  them  as  security  for  their  circulation.  Above 
all  things,  at  that  time  the  United  States  wanted  to 
borrow  money.  It  must  borrow  or  perish;  and 
therefore  a  national  banking  system,  based  for  secu- 
rity on  the  national  debt,  would  open  a  market  for 
some  hundreds  of  millions  of  the  evidences  of  that 
debt,  and  put  a  corresponding  sum  of  immediately 
available  funds  into  the  hands  of  the  government 


346  ELEMENTS  OF  POLITICAL  ECONOMY. 

This  proposal  of  the  Secretary,  involving,  as  it  did, 
the  winding  up  of  the  State  banks  as  such,  found  at 
first  but  little  favor  in  Congress  or  among  the  people. 
The  banking  interests  of  the  eastern  and  middle 
States,  particularly  of  the  State  of  New  York,  from 
whose  State  bank  system  the  idea  was  mainly  and 
by  acknowledgment  borrowed,  were  especially  hostile 
to  the  scheme.  In  his  second  annual  report,  in 
December,  1862,  the  Secretary  iterated  his  recom- 
mendation, and  enforced  it  at  length  by  arguments 
drawn  from  the  necessity  of  effectmg  immediately 
more  extensive  loans,  from  the  character  of  the  cur- 
rency for  soundness  and  uniformity  thus  furnished  to 
the  people,  from  the  convenient  agencies  which  such 
banks  would  furnish  for  the  deposit  of  public  moneys, 
and  from  the  firm  anchorage  which  such  a  system 
would  give  to  the  union  of  the  States.  These  argu- 
ments, which  found  a  response  especially  emphatic 
141^^'*^  from  the  Western  States,  coupled  with  the  assurance 
LCf<.->  ^  of  the  Secretary,  that,  if  Congress  should  concur  in 
his  views,  though  conscious  of  the  great  difficulty 
which  vast,  sudden,  and  protracted  expenditures  im- 
posed on  him,  he  thought  he  should  still  be  able  to 
maintain  the  public  credit  and  provide  for  the  public 
wants,  induced  Congress  to  frame  and  pass  "  An  act 
M-  '^  *-Uc^  r  iq  provide  a  national  currency  secured  by  a  pledge 
i^''^~.  ^^  United  States  stocks,  and  to  provide  for  the  circu- 
lation and  redemption  thereof."  The  act  was  ap- 
proved by  the  President  February  25,  1863. 

Every  bank  organized  under  it  invests  its  own 
capital  stock  in  the  bonds  of  the  United  States, 
bearing  interest.  These  bonds  are  transferred  to 
an  officer  of  the  treasury,  called  the  comptroller,  at 


ON  CURRENCY  IN  THE  UNITED  STATES.     347 

Washington,  who  holds  them  as  security  for  the 
redemption  of  the  bills  of  such  bank,  but  who  pays 
the  interest  on  them  to  the  bank  itself,  so  long  as 
the  bank  redeems  its  bills  promptly  and  violates  no 
provisions  of  the  organic  banking  law.  Ninety  per  / . 
cent,  of  the  amount  of  such  bonds  thus  deposited  ^ 

with  the  comptroller,  provided  the   bonds  be  esti-  ^f^ 

mated  at  par  value  and  bear  interest  at  a  rate  not 
less  than  five   per   cent.,  is  then   furnished  by  the 
treasurer  to  the  bank  in  circulating  notes,  engraved- 
and  registered  by  the  United  States ;  unless  the  cap- 
ital stock  of  the  bank  be  more  than  $500,000  and  ^^  lSZ^i 
less  than  $1,000,000,  in  which  case  only  eighty  per  o^^.^,,^ 
cent,  of  the  capital  is  furnished  in  notes;  and  if  the  v.- 
capital  be  between  $1,000,000  and  $3,000,000,  only  ^' 
seventy-five  per  cent;  and  over  $3,000,000,  sixty  per'^  ''  ^ 
cent.     These  notes  thus  received  by  the  banks,  they '''"°   7"^"' 
issue  to  the  people  in  ordinary  loans  and  payments,  ,  V  ^^  V J^ 
and  they  are  required  by  the  law  to  keep  on  deposit 
in    the    United    States   Treasury   in  lawful    United j'^^/j^ 
States  money  five  per  cent,  of  their  circulation,  ^^^aL^\ c 
to  keep  at  home  25  or  15  per  cent,  (according  to  . 
locality)  of  their  average  deposits,  with  which  to  re- 
deem their  notes  and  deposits-obligations.     If  any 
bank  fails  to  keep  good  this  deposit  at  the  treasury, 
so  that  its  notes  cannot  be  redeemed  on  presenta- 
tion there,  the  United  States  undertakes  to  redeem       ^*^*^  [^ 
the  notes;  and  so  many  of  the  bonds  belonging  to-,^,,^/^^ 
such   bank,  deposited   with   the   comptroller  of  the 
currency  as  security  for  the  redemption  of  the  notes, 
are  then  to  be  sold  as  shall  reimburse  the   United 
States  for  such  redemption ;  so  that  it  is  almost  \rn--'^^^^-"' 
possible  under  the  law  that  the  bill-holders  of  any 


348  ELEMENTS   OF  POLITICAL  ECONOMY. 

national  bank  can  ever  suffer  any  loss.     The  United 
t-        i^  States   holds  the   capital  of   the  bank  in  its   own 

hands,  and  is  thus  enabled  to  guarantee  the  con- 
'^''"^'^  "  vertibility  of  the  bills.  At  the  same  tincie  the  system 
secures  the  manifold  advantages  of  private  capital, 
private  enterprise,  and  personal  sagacity  and  integ- 
rity, in  the  matter  of  loaning  money,  securing  depos- 
its, and  general  management  of  the  banks. 

The  superiority  in  every  respect  of  this   scheme 
Z^y,  U  .of  banking  to  the  fast  and  loose  system  which  pre- 
J^    "^vailed  in  this  country  so  long,  is  very  apparent.     In 
the   first   place,   perfect  publicity  of  the  affairs  of 
/.  every  bank  is  provided  for  in  the  organic  law,  and 

x^t^u  K'       cannot  be  evaded.     The  banks  are  obliged  to  furnish 
a  statement  to  the  comptroller,  under  oath,  of  their 
,  _  ,  exact  condition,  whenever  notified  by  him  to  do  so ; 

.^,^^^  ;,^and  the  dates,  when  this  will  be  done,  cannot  be 
anticipated  by  them  ;  and  the  comptroller  is  bound 
to  publish  from  time  to  time  abstracts  of  these  re- 
ports ;  so  that  everybody  can  know  the  state  of 
each  bank  in  particular,  as  well  as  the  state  of 
the  whole  circulation.  In  the  second  place,  the 
legalized  methods  for  the  redemption  of  the  bank- 
i  -><.-V^notes  in  the  lawful  money  of  the  United  States  are 
speedy  and  effectual.  Redemption  can  be  had — at 
present  in  greenbacks,  prospectively  in  gold,  both  at 
the  counters  of  the  banks  and  at  the  treasury  of  the 
United  States.  The  law  designates  New  Year's, 
1879,  for  the  redemption  in  gold.  In  the  third  place, 
the  government  pledges  itself  to  receive  these  bills 
for  taxes,  excises,  and  all  other  dues,  except  customs' 
duties ;  and  makes  them  legal  tender  in  all  payments 
which  itself  has  occasion  to  make,  except  the  interest 


ON  CUEEENCY  IN  THE  UNITED  STATES.     349 

and  principal  of  the  public  debt.     If,  to  these  pro- 
visions, there   be    added   another,  requiring  all  the 
banks  to  redeem  their  bills  in  New  York,  as  well  as 
at  their  own  counters,  the  bills  will  be  undoubtedly 
uniform  in  value  all  over  the  country,  and  debts  can 
be  paid  by  them  through  the  post-office,  or  other- 
wise, without  the  mediation  of  any  bank  or  the  pay- 
ment of  exchanges.     In  the  fourth  place,  it  is  to  be  /v. 
noticed,  that  the  United   States  absolutely  guaran-9/5^  ^iv^v- 
tees  the  full  payment  of  these  notes,  not  simply  as  3.{jiX^Uui  kc 
trustee  holding  securities  for  the  purpose,  but  as  a.''A^vi^  m  {[ 
principal  pledging  the  public   faith.^     In    the   fifth  ^''^^* 
place,  besides  the  absolute  security  of  ultimate  re- 
demption, the  ratio  of  lawful  money  required  to  the^  ^ 
aggregate  amount  of  deposits  is  much  higher  than  has  ^^""^^  ^[^^ 
hitherto  prevailed  in  practice  throughout  the  country.^'  "' ' 
The  ratio  required  of  all  the  banks  in  seventeen  of 
the  principal  cities  of  the  Union  is  twenty-five  per-^^?'^ 
cent,  and  of  the  banks  elsewhere  fifteen   per  cent. '^'^'^ 
It  is  found  that  this  percentage  is  on  the  average 
more  than  kept  up.^    Add  to  these  reasons  this  other,           ^^' 
that  the  homogeneousness  of  the  money  circulatin^^,^^,,,^ 
among  them,  in  connection  with  a  common  creditor- >voz^ . 
ship  towards  the  United  States  Government,  is  an 
additional  bond  binding  the  States  and  the  people 
together,  and  tending  powerfully  to  neutralize  the 
centrifugal  forces  which  are  always  at  work  in  large 
societies  and  governments. 

But  we  shall  get  an   idea  too  favorable  to  the 
national  banking  system,  unless  we  look  also  at  its  ^-^i^ 
dangers.     In  the  first  place,  the  money  which  these 

1  Walkerh  Science  of  wealth,  page  233. 

2  Report  Comptroller  of  the  Currency,  1872,  pp.  xxii.  xxiii. 


'JT^.' 


360  ELEMENTS   OF   POLITICAL  ECONOMY. 

banks  circulate  is  credit- money,  and  is  liable  in  some 
degree  to  the  disorders  which  are  inseparable  from 
every  form  of  credit.  Credit  is  not  payment,  but  a 
promise  to  pay.  The  promise  may  be  good,  it  may 
be  sure  to  be  fulfilfed ;  but  it  is  not,  and  never  can 
be  made,  the  same  thing  as  fulfillment.  These  bills 
bear  upon  their  face  the  acknowledgment  that  they 
are  promises  to  pay,  and  not  the  pay  itself;  and  men 
are  so  constituted,  and  society  is  so  delicately  organ- 
ized, that  times  are  liable  to  come  when  men  shall 
have  a  general  distrust  of  mere  promises,  and  shall 
desire  to  see  them  changed  into  fulfillment.  It  is 
•i  ft  f^nJ'^^^  ^^^^  these  notes  cannot  all  come  back  at  once 
/for  redemption,  nor  indeed  any  large  proportion  of 
'^"^  them,  since,  unlike  the  money  of  the  old  State  banks, 
they  pass  freely  beyond  the  boundaries  of  States  and 
sections,  and  become  widely  diffused.  Still,  general 
confidence  is  a  thing  so  sensitive,  and  credit-money 
is  in  its  nature  such,  that  an  absolute  freedom  from 
panics  and  consequent  suspensions  cannot  rationally 
be  predicted. 

In  the  second  place,  the  legally  required  ratio  of 
lawful  money  to  liabilities  is  largely  weakened,  as 
the  law  now  stands,  by  the  provision  that  "  bank  bal- 
ances and  clearing-house  certificates  shall  be  deemed 
to  be  lawful  money."  As  far  as  immediate  response 
to  the  depositors  is  concerned,  it  is  evident  that 
this  clause  neutralizes  largely  the  natural  effect  of 
the  required  ratio.  Bank  balances  are  not  cash.  If 
real,  and  not  fictitiously  created,  they  are  a  part  of 
the  assets  of  the  bank,  but  their  virtue  is  too  remote, 
in  most  cases,  to  help  any  bank  sustain  a  "run." 
What  is  wanted  to  convert  notes  and  allay  a  panic 


KJv  ^}  0 


ON  CURRENCY  IN    THE  UNITED   STATES.  851 

is  not  assets,  however  good  they  may  be,  but  lawful 
money.     The  New  York  banks  pay  interest  on  de-  . 

posits,  as  well  from  other  banks  as  from  individuals ; '^^-^^-^-^-^j  "^ 
and,  consequently,  the  reserves  of  the  nineteen  hun-'/Z^-^^^'----^^ 
dred  national  banks  located  elsewhere  than  in  Newf^^A^'', 
York  are  held  in   that  city  to  the  extent  of  about 
one-fifth   of   the   capital    stock  of   all  those   banks. 
These  "  balances  "  due  from  New  York  to  the  coun-  y 
try  count  as  the  principal  part  the  "reserve"  of  the  ^^^     ./i^^^^ 
country  banks,  and  two  very  ill  consequences  follow :  ^,^^^^r^^^  ^ 
first,  the  country  banks  are  weakened  as  to  the  reali7,^./e. . 
purpose  of  a  "  reserve,"  which  is  to  assure  bill-holders 
but  especially  depositors  of  the  safety  of  their  inter- 
ests in  the  bank,  and  of  the  certainty  of  an  imme- 
diate response  to  their  call  ;  and  second,  jmasses  of 
paper-money  go  to  New  York  in  the  dull  season  for 
the  sake  of  this  interest,  and  to  earn  it  can  only  be 
loaned  to   stock   speculators,  whose  operations   are 
injurious  alike  to  the  banks  collectively  and  to  the 
whole   people.     The   increased   transactions   at   the  /,  . 

clearing-house  at  the  time  when  the  demands  oi -T*^  ^ 
legitimate  business  are  least,  show  conclusively  the  *^*^  ?*-*^ 
uses  to  which  this  money  is  put.  The  transactions 
of  the  clearing-house  for  the  year  1872  were  more 
than  $32,000,000,000,  a  larger  amount  than  the  clear- 
ings of  the  city  of  London.  A  depreciated  paper- 
money  is  the  glory  of  speculation,  but  the  blight  of 
honest  business. 

In  the  third  place,  there  is  a  wretched  ambiguity        ^ff- 
in  the  term  "lawful  money"  as  used  in  the  national^::.. :.  ,      ,  \ 
bank   act.     Strictly  construed,  that  term   can   only     , .,       ..u 
mean  the  legal  gold  dollars  of   the   United   States,  ^j^^       (^ 
But  the  Treasury  Notes,  called  greenbacks,  had  been  o^^^^,,^^  i 


^y./ 


352  ELEMENTS   OF  POLITICAL  ECONOMY. 

issued  and  made  legal  tender  a  few  months  before 
the   passage  of  that  act;  and   the  words   "lawful 
money  "  were  designed  to  be  loosely  construed  so  as 
to  mean  greenbacks  ;   and  the  Supreme  Court  has 
allowed  this  construction  ;  and  the  redemption  of 
the  national  bank  notes  has  heretofore  been  a  mere 
mockery.     It  lias  been  a  redemption  in  irredeemable 
I    paper  —  a  sham  equivalent  to  no  redemption  at  all. 
At  the  same  time,  because  the  term  "lawful  money" 
must  of  course  include  the  gold  coin,  the  banks  of 
New  York  can  loan  out  on  interest  to  speculators 
their  greenback  reserves,  and  count  the  demoralized 
gold,  received  for  security  or  collateral,  as  "  lawful 
money  "  in  their  statement  of  "  reserve,"  and   thus 
be  made  to  contribute  —  they  have   been    made  to 
contribute  —  to   very   injurious   speculations.     It  is 
not  decent  for  the  United  States  to  palter  thus  with 
words  in  a  double  sense.     If  the  government  would 
redeem  its  greenbacks,  the  banks  could  redeem  their 
bills ;  they  would  require  no  larger  reserve  than  they 
^  now  hold  ;  and  the  twelve  years'  national  disgrace 
of  compelling  people  by  law  to  receive  a  dishonored 
paper  would  pas5  away.    Treasury  redemption  means 
bank  resumption,  and  when  that  comes,  if  it  ever 
does,  the  national  banking  system  can  be  correctly 
judged  and  easily  amended.       . 

In  the  fourth  place,  there  is  the  facility  with  which 
Congress  may  expand  the  circulation.  This  danger, 
always  impending,  has  already  struck  twice.  By  the 
law  of  July,  1870,  the  original  limit  of  $300,000,000 
was  overpassed,  and  $54,000,000  additional  author- 
ized.  By  the  law  of  January,  1875,  all  limitation  of 
the  amount  of  bank  notes  is  removed  ;  only,  as  these 
are  increased  in  amount,  greenbacks  are  to  be  de- 


ON  CUREENCY  IN  THE  UNITED  STATES.     353 

creased  to  the  extent  of  80  per  cent,  of  such  increase, 

until  the  greenbacks   are  reduced  to   $300,000,000. 

It  would  be  difficult  to  give  solid  reasons  why  the 

country  needs  more  money  now  than  in  1860,  when  ^''-    -    "  '^. 

the    currency  jt?er  capita  was    $10.80,   since  credit- '^'^'"'^  "^"' "^ 

paper  has  come  much  more  than  formerly  to  serve 

the  purposes  of  money.     In  1861  the  paper  money 

was  only  $202,000,000;!  the  maximum  before  that 

was  only  $214,000,000  in  1856,  and   at   the  same 

time  a  maximum   of  $138,000,000  in  coin  ;  ^  since  a^^^^^^ 

1860,  the  volume  of  paper  money  has  much  more  ^^  2^^^^,,._  , 

than   trebled;   the  currency  per  capita  is   now  not  ,/-^     ,;,,.,/> 

far   from    $20.48  ;3   and    the   badness   of    the   cur-  ^  r^^^ 

rency  in  consequence  of  its  excess,  and  almost  in  /^TT  ^ 

XI  r    -x  1.  i_       -x    X-         1       •         aJ^/.  /^vcv- 

the  measure  of  its  excess,  can  be  unhesitatmgiy  m-  7 
ferred  from  this  marked  increase  of  the  per  capita 
rate.  It  is  nearly  certain  that  for  strictly  business 
purposes  no  more  money  is  required  now  than  in 
1860  ;  almost  all  wholesale  transactions  are  settled 
for  in  credit-paper,  and  this  credit-paper  is  virtually 
set  off  against  some  other  credit-paper,  currency 
being  only  needed  to  adjust  the  balances ;  farmers 
indeed,  as  a  rule,  sell  their  grain  and  wool  for  money, 
and  wages  will  always  be  largely  paid  in  monej^ ; 
but  general  business  is  being  done  more  and  more 
by  credit-paper  of  some  sort,  and  to  do  a  given 
volume  of  business  requires  much  less  currency  than 
formerly  it  did.  The  national  banks  at  present  are 
circulating  $345,000,000  of  paper  money. 

1  Report  of- Mr.  Secretary  Chase. 

2  EunVs  Merchant's  Magazine  Tear-Book,  1870. 
«  Comptroller's  Report,  1872. 


854  ELEMENTS   OF  POLITICAL  ECONOMY. 

I  will  suggest  as  improvements  in  the  practica* 
working  of  the  national  banking    system   the  fol- 
/  .-.       'owing:  — 

M^^.^^  1.  The  utter  abolition  of  usury  laws.  It  is  true, 
that  these  laws  of  the  States  in  which  the  banks  are 
located  are  both  evaded  and  disregarded  by  the 
banks,  but  it  is  also  true  that  the  influence  of  the 
laws  is  mischievous,  and  makes  a  paper-money,  suf- 
ficiently inelastic  in  its  own  nature,  still  more  ine- 
lastic. It  is  a  great  deal  better  to  do  openly  and 
legally,  what  will  otherwise  be  done  indirectly  and 
clandestinely.  When  money  is  naore  in  demand, 
interest  on  it  naturally  rises  ;  if  higher  interest  is 
legally  demanded,  those  who  can  forego  the  use  of 
the  money  will  do  so,  leaving  the  more  for  those 
who  want  it  the  more  ;  and  when  money  is  very 
much  wanted,  banks  ought  to  accommodate  those 
who  want  it  the  most,  and  the  only  practical  way  to 
find  out  who  want  it  the  most  is  to  find  out  who  will 
pay  the  most  for  its  use.  Banks  have  a  right  to  get 
all  that  they  can  for  their  services  in  an  open  market, 
and  it  is  best  for  the  public  that  they  use  this  right, 
for  then  the  services  are  sure  to  be  rendered  to  those 
who  most  need  them.  A  rising  rate  of  interest  in 
time  of  money  pressure  is  somewhat  like  the  brakes 
upon  the  railroad  train.  It  manages  the  momentum. 
It  graduates  the  supply  to  the  demand.  It  tends  to 
leave  something  to  those  most  desperately  in  need. 
Free  interest  will  not  make  our  present  currency 
elastic,  but  it  will  tend  towards  it ;  no  currency  can 
be  so  elastic  as  the  world's  currency  of  gold  and 
silver,  with  or  without  smaller  quantities  of  notes 
instantly  convertible  into  that. 


ON  CURRENCY  IN   THE   UNITED   STATES.  355 

2.  So  long  as  legal-tenders  and  national  bank  bills  ^  J^i^u^u^-^ 
are    equally    irredeemable,   and   government   stands 

equally  behind  them  both,  there  does  not  ?eem  to 
be  any  good  reason  why  both  may  not  be  counted 
equally  in  the  reserve.  If  they  could  be  thus 
counted,  the  form  of  harmful  speculation  known  as 
"locking  up  the  greenbacks"  would  be  shorn  of  its 
power.  It  would  be  much  easier  for  the  banks  than 
it  is  now  always  to  have  on  hand  the  legal  reserve, 
depositors  would  probably  feel  as  secure  as  before, 
and  I  cannot  see  how  it  would  weaken  the  safety 
of  the  system. 

3.  Experience  has  shown,  both  in  this  country 
and  in  Great  Britain,  that  there  are  periods  in  every 
year  during  which  large  bank  accommodations  are 
sure  to  be  demanded,  and  other  periods  when  they 
are  sure  to  be  slack.  June  and  July,  in  this  country 
at  least,  are  the  slackest  months ;  the  two  months 
preceding  June  and  the  two  following  July  are  still 
slack;  March  and  October  are  demand  months;  and 
from  November  to  March  the  period  of  strongest 
demand.  It  is  easy,  accordingly,  to  maintain  the 
legal  reserve  in   the  summer,  more  difficult  in  the 

winter.     Since  the  law  of  1874  abolishes  a  reserve  .  j    .   -    j  . 
on  the  basis  of  deposits  and  circulation  both,  in  fa-, 
vor  of  a  5  per  cent,  deposit  in  the  treasury  for  thei    .  .  /^"^ 

redemption  of  the  circulation,  retaining  the  25  or  16  \^ 
per  cent,  reserve  as  behind  the  deposits  only,  the  dif- 
ficulty in  question  is  less  than  it  was  before ;  and 
Professor  Atwater's  proposal  of  an  average  reserve  (}ip;^>4^t^/ 
taking  all  parts  of  the  year  together,  instead  of  the  j^^,,^^,,!^^^^^^^ 
rigid  reserve  to  be  maintained  at  all  times,  becomes' 
less  pertinent  than  it  was;  so  also  does  Mr.  Scbrei- 


>       ■  1 


hA,  (VvX-f-V- 


356  ELEMENTS   OF  POLITICAL  ECONOMY. 

ner's  plan,  brought  out  in  the  "  Financier  "  of  Aug- 
ust 9, 1873,  to  vary  the  scale  of  reserves  from  a  large 
per  cent,  in  summer  to  a  smaller  one  in  winter.  Both 
of  these  proposals  vi^ere  designed  to  obviate  a  practical 
difficulty  always  experienced  in  maintaining  through- 
out all  banking  exigencies  an  inflexible  reserve. 

4.  In  the  present  provisional  state  ol  things,  before 
resumption  takes  place,  I  hold  that  a  strong  legal 
reserve  should  be  maintained ;  and  agree  with  Mr. 
Schreiner,  that  the  banks  should  be  prohibited,  under 
severe  penalties,  from  including  and  counting  as  part 
of  their  legal  reserve  any  gold  or  gold  certificates  on 
which  they  have  in  any  manner  loaned  or  advanced 
legal-tenders. 

5.  The  grand  improvement  in  the  working  of  our 
o^x-Mr-  ,vw  -    bank  system  would  be  the  Resumption  of  Specie 

Payments. 

The  law  of  July,  1870,  also  authorized  a  new  kind 
of  banks  called  corn-banks,  not  limiting  their  number 
or  the  capital  to  be  invested  in  them,  virtually  pledg- 
ing the  government  to  redeem,  if   necessary,  their 
^  notes  in  gold,  and  requiring  them  to  keep  25  per 

V*-^-*-^^     '  t      cent,  "of  their  outstanding  circulation  in  gold  coin 
mU.vU    p.  of  the   United  States."     This   circulation   must  be 

^  rt*-*^'^^'  based  on  United  States  bonds  at  the  rate  of  80  for 
100.  Four  such  banks  had  been  organized  at  the 
opening  of  the  year  1873,  one  in  Boston  and  three 
in  Californra,  and  their  aggregate  circulation  of  re^ 
deemable  notes  was  at  that  date  $1,600,000.  Thin 
legislation  adds  an  entirely  new  kind  of  money  to 
kinds  quite  too  numerous  before.  Probably  no  other 
nation  ever  had  so  many  sorts  of  money  at  one  time 
as  are  legal  now  in  the  United  States.  Let  us  see 
how  many  kinds  of  money  we  have. 


fjk^{y<^^ 


|Cv 


£u.vv^^  cL^^L. 


ON  CUKRENCY  IN  THE  UNITED   STATES.  357 

1.  Coin  money.     But  even  here  there  is  great  con-  A'C^^.s>jt^ 
fusion,  and  dissimilarity  in  value.     The  silver  dollar, 
2xcept  the  new  trade  dollar,  is  no  longer  coined  at 
the  mint,  but  is  still  leo:al   tender  foL, debts,  to  all    7 
amounts,  and  is  worth  much  more  than  the  gold 

dollar,  and  more  still  than  a  nominal  dollar's  worth  of 
smaller  silver;  while  the  baser  coinage  is  of  two  va- 
rieties, copper-nickel,  and  copper-tin-zinc,  of  differing 
inherent  and  legal  tender  value. 

2.  Coin    certificates.     Persons   may  deposit   gold  C»^^   ^.a^^ 
coin    and    bullion  in  sums  not  less  than  $20  with 

any   treasurer    of  the    United    States,  and   receive 

therefor  certificates,  which  are  redeemable  at  sight  /^  / 

and  receivable  for  duties  on  imports.     Governments!^  <^<A*y  C 

may  also  issue  certificates  in  payment  of  interest  o\\tU^t.iXijO 

the  public  debt;  but  the  amount  issued  to  depositors    " 

and  as  interest  must  not  be  more  than  20  per  cent. 

beyond  the  gold  then  in  the  treasury. 

3.  Bills  of  coin  banks.  These  are  much  like  the 
old  State  bank-bills,  except  that  they  have  the  in- 
dorsement of  the  United  States.  The  Comptroller 
of  the  Currency  may  issue  to  any  association  making 
a  deposit  of  bonds,  as  security,  notes  of  different  de- 
nominations not  less  than  five  dollars,  to  an  extent 
not  exceeding  80  per  cent,  of  the  par  value  of 
the  bonds  deposited.  These  notes  rest  back  for  re- 
demption on  one  quarter  of  their  own  amount  in 
coin.  One  dollar  presented  for  payment  in  coin  will 
practically  withdraw  four  dollars  from  circulation, 
thus  introducing  an  element  of  hazardous  fluctua- 
tions. 

4.  Leg-al  tender  notes.  These  were  issued  in  1862 
and  1863  to  the  amount  of  $450,000,000,  of  which 


858  ELEMENTS   OF  POLITICAL  ECONOMY. 

$382,000,000  are  still  outstanding.  They  are  the 
largest  element  in  our  present  currency,  they  bear  no 
interest,  they  are  irredeemable,  and  have  always 
been  much  depreciated  as  compared  with  coin. 

5.  Fractional  currency.  $50,000,000  in  denomi- 
nations less  than  a  dollar  are  authorized  by  law,  and 
about  $40,000,000  are  now  in  circulation.  By  the 
law  of  1875,  this  fractional  money  is  to  be  replaced 
by  the  subsidiary  silver  coins.  It  is  now  redeemable 
in  legal  tenders  in  sums  not  less  than  $3.00. 

6.  National  bank  bills.  About  $345,000,000  of 
these  are  now  in  the  hands  of  the  people.  As  they 
are  redeemable  in  legal  tenders,  their  value  is  equal 
to  those  and  equally  depreciated  as  compared  with 
coin. 

Thus  the  present  currency  of  the  country  is  made 
up  of  six  different  kinds  of  money,  embraces  three 
distinct  dollars  of  differing  value,  each  of  which  is 
legal  tender  for  debts  in  all  sums,  and  amounts  in  all 
to  $800,000,000  more  or  less.  It  is  too  much  in  quan- 
tity, and  most  of  it  inferior  in  quality.  The  demand 
for  more  currency,  which  has  not  even  yet  spent  its 
force  in  some  parts  of  the  country,  is  as  senseless  a 
demand  as  ever  was  raised.  It  proceeds  from  the 
old  misapprehension  of  the  nature  of  money.  Money 
is  only  a  tool,  —  a  value  tool,  whose  sole  woik  is  to 
help  exchange  other  values,  —  and  men  confound  the 
tool  with  the  values,  and  think  there  is  a  lack  of  the 
former  when  what  is  really  lacking  is  the  latter. 
Tlie  old  dogma  of  the  Mercantile  System,  though 
confuted  a  thousand  times,  is  perpetually  stealing 
back  into  the  minds  of  men.  It  is  a  striking  in- 
stance of  what  would  be  called  by  the  logicians  a 


ON  CURRENCY  IN  THE  UNITED  STATES.    359 

Fallacy    of    Simple    Inspection.     On   the    contrary, 
there    are    those,  who,   admitting   that   the   present  ^''''''•'''''"'"'•'^ 
volume  of  currency  is  excessive,  nevertheless  think  ^^''"^'■■*'^^'"^  "^ 
that  business  will  soon  grow  up  to  it,  that  prospec-'^  ^^^ 
tive  transactions  will  healthfully  absorb  the  whole  ^f^^^'^'^^^^^^ ' 
it,  and  that  the  simple  force  of  national  development, 
without  contraction  of  its  volume,  will  bring  our  de-      ^  ^  v.      * 
predated  currency  to  par  with  gold.     This  position  Z^**'^-^^^^  ** 
mistakes  the  method  in  which  business  is  practically 
done.     Increase    of  business    does    not   necessarily 
imply  increase  of  currency  at  all.     The  business  of 
the  whole  world  is  largely  done,  increasingly  done, 
by  the  use  of  a  commercial  expedient  called  set-off, 
by  which  one  debt  is  made  to  pay  another  debt,  and 
so  the  mass  of  debts  liquidate  themselves,  and  little 
currency  is  needed.     It  is  the  principle  of  the  clear-     ,  . 

ing-house.  London  has  become  the  clearing-house  gX^^^^-vw,./^ 
of  the  whole  world,  the  place  where  international  ^^^  ^^ajJ-^^ 
debts  are  exchanged  against  each  other,  and  some- 
thing like  £5,000,000,000  of  checks  and  bills  pass 
that  clearing  yearly.  British  business  has  increased 
threefold  at  least  in  the  last  quarter  of  a  century,- 
but  British  currency  has  increased  but  little,  even  if 
it  has  increased  at  all.  The  bank-note  circulation 
of  the  two  islands  is  a  little  less  than  £45,000,000, 
and  the  gold  and  silver  coin  just  about  £80,000,000. 
Money,  though  vastly  important  as  determining  the 
denominations  of  value^  does  after  all  but  the  driblets^ 
the  great  bulk  of  transactions  being  done  by  set-oif. 
Even  bank  notes,  when  truly  convertible,  unless  of 
small  denominations,  have  usually  a  short  interval 
between  issue  and  redemption.  The  average  life  of 
a  Bank  of  England  note  is  reckoned  to  be  less  than 
three  days,  and  is  never  reissued. 


360  ELEMENTS  OF  POLITICAL  ECONOMY. 

Professor  Bonamy  Price  of  the  University  of  Ox- 
ford, in  his  excellent  book  on  the  Currency,  has 
admirable  remarks  on  the  limits  of  money  both 
metallic  and  paper;  and  in  a  private  letter  to  my 
friend  General  Garfield  (who  permits  me  to  use  it), 
gives  the  following  neat  illustration  :  "  Goods  are 
very  little  exchanged  by  currency, —  I  mean  coin  and 
notes.  Setting  off  of  debts  against  each  other  does  the 
work.  Just  analyze  an  investment.  Take  this  case. 
I  make  a  profit  of  .£1000  by  selling  iron  to  America. 
I  wish  to  invest  it.  I  am  paid  by  a  bill  which  implies 
that  some  Englishman  is  a  debtor  to  some  American. 
I  send  the  bill  to  my  banker.  He  gets  it  paid, —  not 
in  currency,  but  by  a  setting  off  of  debts  at  the  clear- 
ing house.  I  buy  a  railway  share,  or  a  lot  of  Amer- 
ican cotton.  I  pay  for  it  by  a  check  on  my  banker, 
who  now  owes  me  £1000.  He  pays  that  check 
again,  not  in  currency,  but  at  the  clearing  house. 
The  result  is  that  I  made  .£1000  by  selling  iron,  and 
I  have  the  proceeds  in  a  railway  share  or  cotton,  and 
currency  has  not  done  one  iota  of  the  operation." 

In  opposition  to  the  complexities,  uncertainties, 
and  endless  losses  of  our  present  currency,  my  friend, 
Mr.  Amasa  Walker,  advocates  what  he  calls  a  mer- 
cantile currency,  that  is,  a  paper  money  issued  by 
banks,  and  based  dollar  for  dollar  on  specie  actually 
in  reserve.  He  would  have  but  one  kind  of  money, 
and  that  kind  this.  As  he  admits,  such  a  money  would 
be  local  and  conventional,  but  it  would  also  be  as  in- 
variable in  value  as  specie,  and  more  convenient.  But 
as  this  plan  requires  the  minting  and  maintaining  of 
as  much  or  more  specie  than  would  be  required  if 
specie  were  the  only  money,  as  it  would  always  be 


ON  CURRENCY  IN  THE  UNITED   STATES.  361 

difficult  to  secure  that  all  the  banks  should  always 
have  as  much  of  coin  in  reserve  as  of  paper  circu- 
lating, and  as  the  element  of  credit  enters  into  the 
nature  of  such  paper  money,  I  cannot  think  his 
scheme  is  preferable  to  my  own. 

Let  the  money  of  the  nations  be  gold  and  sil-  I J-^yv^  %''^* 
ver  coins;  let  these  be  minted  on  some  universal 
scheme  for  commercial  convenience ;  let  nothing 
be  used  as  a  measure  of  values  but  the  denomi- 
nations of  these  coins;  then,  in  connection  with 
such  money  as  a  basis,  money  which  will  hold  its 
units,  whether  pound,  dollar,  or  franc,  as  invariable 
as  such  measures  can  be  kept,  let  there  come  in  the 
various  expedients  of  paper  credit,  such  as  certifi* 
cates  of  deposit,  bills  of  exchange,  checks,  drafts,  or 
what  name  soever  they  may  bear,  and  most,  if  not 
all,  the  conveniences  of  paper  money  will  be  secured, 
and  none  of  its  fluctuations  and  disasters  experi- 
enced. These  forms  of  paper  would  not  be  money, 
although  they  might  be  made  to  perform  much  more 
than  they  do  now  one  of  the  functions  of  money, 
that  is  to  say,  they  would  serve  in  large  and  distant 
transactions  as  a  medium  of  exchange,  but  they 
never  could  disturb,  as  paper  money  usually  does, 
the  measure  of  value.  Under  this  system  banks 
would  still  be  necessary  for  the  purpose  of  loaning 
money,  buying  and  selling  credits,  making  collections, 
and  so  on,  hut  they  would  not  manufacture  and  issue 
money.  Thus  the  two  legitimate  spheres  of  money 
and  of  credit  will  be  kept  entirely  distinct. 


362  ELEMENTS  OF  POLITICAL  ECONOMY. 


CHAPTER   XIL 

^.cy  ON   CREDIT. 

Political  Economy  is  the  science  of  exchanges. 
Because  it  is  the  science  of  exchanges,  its  definitions 
and  principles  must  be  broad  enough  to  cover  and 
explain  all  cases  of  exchange  actually  occurring  or 
possible  to  occur.  The  nature  of  the  things  ex- 
changed is  a  matter  of  indifference ;  the  science  has 
alone  to  do  with  the  motives  and  facts  of  the  ex- 
i.Xi^..^  /C^v^r^  changes  themselves.  Some  exchanges  are  perfectly 
consummated  at  once,  the  things  exchanged  and  the 
ownership  in  them  are  mutually  passed  over  then 
and  there,  and  there  is  an  end.  But  there  are  other 
exchanges  which  have  this  peculiarity,  that  the  trans- 
action is  not -then  and  there  ultimately  closed,  but 
one  (or  both)  of  the  persons  exchanging  relies  on 
the  good  faith  of  somebody  to  fulfill  in  the  future  a 
promise  expressly  or  impliedly  made  in  the  exchange. 
This  peculiarity  is  very  important  to  be  considered, 
and  gives  rise  to  all  those  phenomena  which  pass 

*"  "^^ under  the  general  name  of  Credit.     Credit  and  Debt 

are  correlative  terms.  There  is  no  credit  without 
debt,  and  there  is  no  debt  without  credit.  Strictly 
<'w:vy\  defined,  a  Credit  is  a  Right  to  demand  something 
from  somebody  ;  strictly  defined,  a  Debt  is  an  Obliga- 
tion to  pay  something  to  somebody ;  there  would  be 
some  advantage  in,  and  there  is  some  tendency  in 


ON   CREDIT.  363 

commercial  language  towards,  the  use  of  these  terms 
in  this  technical  sense;  but,  as  the  rights  alone 
become  the  subject  of  exchange,  the  terms  merely/,  . 

relative  to  persons  become  of  less  consequence,  ^iid  ,j^^^2. 
what  lies   between   debtors   and   creditors    may   be  ^ 

called  indifferently  credits  or  debts;  for,  while  it  is 
of  vital  consequence  to  persons^  whether  they  owe  or 
are  owed  by  others,  exchange  cares  not  which  is 
debtor,  provided  both  be  "  good,"  but  looks  alone  at 
the  rights,  which  are  property.  While,  therefore,  the 
relation  of  creditor  and  debtor  is  wholly  a  personal 
relation,  is  in  substance  a  claim  of  one  person  on 
another  person,  and  is  based  on  good  faith  only,  the 
claim  itself  is  just  as  much  property  as  anything  else 
is  property.  It  may  be,  and  is  constantly,  bought 
and  sold.  It  always  involves  the  element  of  future 
time,  and  is  founded  on  the  belief  of  one  of  the 
parties  in  a  virtual  promise  made  by  the  other ; 
hence  the  term  credit  from  Credo,  I  believe,  and  the 
corresponding  term  debt  from  Debeo,  I  owe.  The 
right  to  demand  from  the  debtor  at  some  future  time 
an  equivalent  for  what  the  creditor  renders  now,  is 
the  service  which  the  creditor  receives  from  the 
debtor  at  the  time  of  the  exchange.  It  is  a  clear 
case  of  value.  Each  renders  to  the  other  satisfactory 
equivalents.  The  right  to  demand  a  future  equiva- 
lent is  the  present  equivalent  for  the  sake  of  which 
cjomething  else  is  rendered.  All  our  definitions  apply 
here  perfectly.  Considered  as  a  mere  case  of  value,  a-j  c^  v>wk^i 
the  transaction  may  be  said  to  be  ended;  but,  con-'^"^ 
sidered  as.  to  the  nature  of  the  exchange  which  re- 
quires another  exchange  to  complete  it,  the  transac-^''''^:*^f ''T? 
tion  is  not  yet  ended,  and  Political  Economy  must 


864  ELEMENTS   OF   POLITICAL  ECONOMY. 

follow  it  in  its  principles  to  the  end.  We  define 
Credits  or  Debts,  then,  as  Rights  not  yet  realized. 

The  amount  of  transactions  in  credits  is  im- 
mense in  every  commercial  country,  and  is  becom- 
ing constantly  greater.  Not  only  are  the  exchanges 
very  common  in  which  the  right  to  demand  future 
payment  is  one  of  the  services  rendered,  but  the  ex- 
U^ur..'.'  elusive  traffic  in  debts —  exchanges  of  one  form  of 
debt  for  another — has  already  reached  gigantic  pro- 
portions in  all  parts  of  the  world.  In  order  that  this 
form  of  exchanges  may  take  place,  it  is  of  course 
needful  that  there  should  be  a  general  confidence  in 
the  public  mind ;  in  other  words,  a  general  expecta- 
tion that  such  debts  will  be  promptly  paid.  As  indi- 
cating a  common  honor  and  financial  ability  among 
business  men,  and  as  facilitating  the  production  of 
services  of  all  sorts,  this  state  of  general  confidence 
is  so  desirable  in  the  sphere  of  exchange,  that  great 
pains  should  be  taken  that  nothing  occur  to  destroy 
it.  Credit-exchanges  are  naturally  more  sensitive 
than  any  other,  since  they  walk  by  faith  and  not  ^ 
sight.  For  reasons  to  be  adduced  shortly,  they  are 
more  liable  to  be  unduly  multiplied  than  other  ex- 
changes are.  The  credit  system  is  a  great  blessing 
to  mankind,  but,  like  all  other  great  blessings,  is  very 
likely  to  be  abused. 

Mr.  Macleod,  who  seems  to  me  to  have  cast  orig- 
inal and  important  light  on  the  subject  of  Credit, 
although  endeavoring  too  much  to  apply  to  it  strict 
mathematical  forms,  makes  two  preliminary  distinc- 
tions. Of  these,  the  first  is,  the  distinction  between 
those  paper  documents  which  convey  titles  to  specific 
>7>.M,^^  W,  things^  such  as  bills  of  lading  and  dock  warrants, 


rt.  -r  • 


9U^>*>^^3 


J 


ON  CREDIT.  865 

and  those  paper  documents  which  convey  credit 
rights^  such  as  bank  notes  and  bills  of  exchange. 
Both  are  transferable  at  will,  but  the  former  go  with 
the  goods,  are  a  title  to  the  goods,  and  have  no  value 
separate  from  the  goods;  while  the  latter  have  noth- 
ing to  do  with  any  specific  piece  of  property,  but  are 
a  general  claim  upon  a  person.  For  example,  a  man 
takes  a  package  of  greenbacks  to  his  banker,  and  ^  2w.v^^<. 
asks  him  to  take  care  of  it,  and  return  it  to  him  or^ 
any  one  else  he  may  name,  on  demand,  no  property  yy^j^d,^^, 
in  the  money  passes  over  to  the  banker,  the  relation /ij;^<Zj,,^^ 
of  debtor  and  creditor  does  not  arise,  the  banker  be- 
comes the  Trustee  or  Bailee  of  the  money,  but  not 
its  owner  ;  but  when,  in  the  ordinary  case,  a  cus- 
tomer deposits  money  with  his  banker,  the  property 
in  the  money  passes  over  absolutely  to  the  banker, 
the  relation  of  debtor  and  creditor  arises,  the  de- 
positor receives  a  claim,  that  is,  a  right  to  demand, 
in  lieu  of  his  money,  and  the  transaction  becomes  a 
true  exchange.  The  banker  buys  the  money  of  the 
customer,  and  sells  him  the  right  to  demand  back 
an  equal  sum  at  any  time.  Thus  we  reach,  through 
this  distinction,  the  exact  nature  of  Credit. 

The  second  distinction  turns  on  a  similar  point, 
and  clears  up  the  ambiguity  in  the  English  words  , 

loan  and  borrow.  I  use  the  same  word,  when  I  say,^'  ^-wlT 
"  I  loaned  him  the  book,"  and  when  I  say,  "  I  loaned ^j^^.rr.Z 
him  ten  dollars,"  but  the  two  transactions  are  quite 
distinct  in  their  nature.  In  regard  to  the  book,  I  do 
not  alienate  to  him  my  property  in  the  book  at  all, 
I  expect  him  to  return  to  me  that  particular  book, 
and  I  may  even  take  it  back  without  his  permission ; 
but  in  regard  to  the  money,  I  do  alienate  my  prop- 


366  ELEMENTS    OF  POLITICAL  ECONOMY. 

erty  in  it  completely,  I  have  no  claim  on  that  specific 
money  but  only  on  an  equivalent  amount,  and  I  am 
a  thief  if  I  take  that  amount  out  of  his  purse  be- 
cause I  happen  to  find  it.  I  have  a  claim  on  him 
for  ten  dollars,  but  he  must  pay  me  voluntarily  or  be 
compelled  by  legal  process.  Thus  the  loaning  and 
borrowing  of  chattels  come  under  one  set  of  legal 
incidents,  and  commercial  loaning  and  borrowing 
come  under  another.  The  Latin  language,  rich  in 
legal  distinctions,  has  a  word  for  each  of  these  trans- 
actions ;  the  loan  of  a  chattel  is  a  commodalum,  and 
conveys  no  property ;  the  loan  of  money,  or  other 
measurable  thing  like  that,  is  a  mutuum^  and  be- 
comes the  full  property  of  the  receiver. 

The  sale  of  a  service  to  be  rendered  in  future, 
which  is  the  core  of  credit,  is  well  illustrated  by  the 
old  usage  of  English  booksellers  to  advance  money 

AiA  w  c*^-|>>4^,iv*'.to  authors  on  a  book  not  yet  written.  Copyright  is 
a  right  of  the  author  to  demand  pay  for  books  not 
yet  sold  after  they  shall  have  been  sold.  The  copy- 
right itself  may  be  bought  and  sold.     In  an  inven- 

Aw^uvU^  n^^L  tory  of  all  values,  accordingly,  it  is  very  clear  that 
'       -  there  must  be  included  (1.)  the  property  in  the  pro- 

duction of  the  past,  or  commodities;  (2.)  the  prop- 
erty in  the  production  of  the  present,  or  personal 
services;  and  (3.)  the  property  in  the  production  of 
the  future,  or  credits.  The  first  and  last  are  com- 
pletely transferable,  and  the  second  partially  so ;  all 
are  well  guarded  by  law ;  and  the  last,  though  itself 
intangible,  is  commonly,  but  not  necessarily,  recorded 
^  -xldu;  °"  paper.  The  paper  is  the  evidence  of  the  right, 
T<w*VJ^"^  "°*  *^^  "ght  itself.  These  paper  documents 
are  termed  Instruments  of  Credit,  and  are  of  two 


ON  CREDIT.  367 

kinds:  first,  Promises  to  pay,  and  second,  Orders  to^^^^^^"^^ 
pay.     We  will  first  look  at  these  principal  forms  of 
Credit,  and  then  at  its  advantages  and  disadvantages. 

(1.)      Book    Accounts.      A   charge   in   a   trader' a  oi>  i*^^^.^.^^*^' 
books  is  both  a  current  and  a  legal  evidence  that^^-*'^^^^^'*^**' f*^ 
the   person  charged  has  received  a  certain   service, ')' *'^''^*'*^ 
and  has  virtually  promised  to  render  the  sum  charged ^'*'*'^  ^*^ 
as  a  return  service.     This  is  ihe  most  common  of 
the  forms  of  credit;  and  if  the  person  charged  fails 
of  his  own  accord  to  complete  the  exchange  thus 
commenced,  the  law,  in  the  absence  of  any  proof  to 
make  the  charge  suspicious,  collects  it,  if  possible, 
and  forcibly  completes  the  exchange.     The  conven- 
ience of  this  form  of  credit  is  so  great  that  it  is  not 
likely  ever  to  be  disused;  and  as    between  people 
who  deal  much  with  each  other  is  very  useful,  inas- 
much  as   their  respective   book    accounts    are    set 
against  each  other  in  settlement,  and  only  balances 
are  required  to  be  cancelled  in  money.     It  is  for  the 
benefit  of  both  creditor  and  debtor,  however,  that 
such  credits  should  be  short  in  time,  and  such  settle- 
ments frequent,  since  thus   only  does  the  creditor 
realize  the  gains  of  the  exchange,  and  the  debtor 
keep  fair  his  mercantile  name.     If  it  be  difficult  or 
impossible  to  follow  strictly  the  excellent  financial 
maxim,  "  Pay  as  you  go,"  the  next  best  thing  to 
that  is,  '*  Go  and  pay."     The  gains  of  an  exchange 
are  lessened,  or  its  terms  become  more  onerous,  just 
in  proportion  as  delay  in  its  completion  is  experi- 
enced or  expected.     Book  accounts  are  subject  also  ^  _ 
to  this  disadvantage  as  compared  with  other  forms                 ^ 
of  credit,  that  their  number  and  amount  as  against 
any  person  are  less  likely  to  become  publicly  known, 


868 


ELEMENTS  OF  POLITICAL  ECONOMY. 


>«lM>'^.^'V-v^^ 


a^ 


■Mi'i»  'L 


/>w*^fc,,S,&*».*^- 


and  therefore  he  is  more  likely  to  be  trusted  in  this 
form  by  others  beyond  the  point  of  his  solvency 
and  their  safety. 

(2.)  Promissory  notes.  These  are  issued  by  indi- 
viduals, corporations,  and  nations.  They  are  usually 
on  interest ;  and  in  this  case,  if  the  principal  be  con- 
sidered secure,  and  the  interest  be  promptly  paid, 
the  element  of  time  is  comparatively  a  matter  of 
indifference,  because  the  interest  is  compensation  for 
delay,  and  is  frequently  the  motive  on  the  part  of 
the  holder  of  the  note  for  rendering  that  service  of 
which  the  note  is  evidence.  When  such  promis- 
sory note,  or  other  form  of  credit,  is  payable  to 
bearer,  it  may  run  a  devious  round,  may  play  a  part 
in  many  a  transaction ;  but  it  is  in  reality  nothing 
but  a  general  warrant  entitling  the  holder,  in  view  of 
some  original  service  of  the  claim  for  the  return  of 
which  he  has  become  in  some  manner  possessed, 
to  take  his  satisfaction  for  that  service  whenever  he 
will.  It  is  like  the  land  warrants,  given  by  the 
United  States,  entitling  the  holder,  in  return  for  mili- 
tary service  rendered,  to  locate  his  acres  on  any  unoc- 
cupied national  land  within  the  national  boundaries. 
As  a  warrant,  its  function  ceases  so  soon  as  the  acres 
have  been  chosen.  Credit  passes  into  payment. 
The  private  notes  of  individuals  and  corporations 
are  payable  in  money,  and  if  in  credit-money,  this 
itself  ends  in  something  that  is  not  credit,  and  thus 
the  circuit  of  exchange  is  completed. 

When  the  United  States  borrows  money,  it  gives 
the  lender  a  promissory  note  on  interest  at  a  certain 
rate,  interest  and  usually  principal  being  payable  at 
certain  specified  times.    These  notes  are  called  indif- 


ON  CREDIT.  369 

ferently  bonds,  stocks,  or  funds.    The  government  is- 
sued in  1862-1865,  both  inclusive,  about  $2,500,000,-  ^ 
000  worth  of  them,  in  return  for  money  loaned  to  it '  '  " 
by  the  people,  and  they  bore  interest  at  rates  varying' 
from  5  to  7^xr  per  cent,  and  were  payable  at  periods  **** 

varying  from  three  to  forty  years.     The  bonds  des-/^^-^-- 
ignated  as  "  five-twenties,"  bear  gold  interest  at  six 
per  cent.,  and  the  government  reserves  the  right  to 
pay  the  principal  in  five  years,  and  pledges  itself  to  ^i^-  U-^^i^ 
pay  it  twenty  years  from  date.     So  of  the   "ten- 
forties."      The    "  seven-thirties  "  were  so  named,  not  oic^v-cw  H  ' 
from  the  time  of  payment,  but  from  the  rate  of  inter- 
est, which  was  7yV^  per  cent.,  payable  in  legal  tenders 
for  three  years,  when  the  principal  was  payable  in  the 
same,   or   fundable    in    six    per    cent,  gold-bearing 
bonds,  at  the  option  of  the  holders.    So  ready  have 
the   American  people  been  to  loan  money  to  their 
government  for  the  past  few  years,  and  take  these 
bonds  as  security,  that  the  treasury  has  experienced 
very  little  embarrassment  from  the  want  of  money,  r^eU^  o^ 
although  the  expenditures  have  been  at  times  over ^t*-^^^^^-^ 
$3,000,000  a  day.    In  the  course  of  one  week  in  the 
spring  of  1865,  ninety  and  odd  millions  of  dollars 
were  subscribed  to  a  national  loan.     It  is  believed 
that  the  history  of  national  borrowing  presents  no 
parallel  with  the  late  success  of  the  United  States 
in  realizing  money  in  the  way  of  loans.     The  largest  ^-^^^^ 
English  loans  ever  made  were  made  in  1812  and  "^' 
1813,  during  the  wars  with  Napoleon  and  the  United 
States.     In  these  two   years  the  British  exchequer 
borrowed  $534,000,000,  being  an  average  of  $22,- 
250,000  a  month,  and  pronounced  that  a  wonderful 
financial  achievement,  as  it  was ;  but,  from  an  ag- 

24 


370  ELEMENTS  OF  POLITICAL  ECONOMY. 

gregate  of  national  wealth  not  larger  than  Eng- 
land's then  was,  though  from  a  larger  population, 
the  United  States  realized  in  four  years  from  loans 
three  times  as  much  at  least  in  gold  value,  and  at 
an  average  rate  of  interest  but  little  higher  than 
England  then  paid,  which  was  five  per  cent,  and 
a  fraction.^      The  treasury  notes    commonly  called 

yxj^rcr^  greenbacks   are    promissory   notes   not    on    interest. 

Jt-ttA^^t/^'    They  were  made  a  legal  tender  for  all  debts  public 
and  private  except  duties  on  imports  and  interest  on 
the  public  debt. 
j^  (3.)    Bank-bills.     Bank-bills  are  a  form  of  prom- 

*^  '      issory  notes  not  on  interest,  and  thus  differ  from  the 

WVxfr>^  \tk^  ,  jjQ^gg  Qf  ordinary  corporations ;  but  the  bank  offers, 
as  a  sort  of  compensation  for  the  privilege  of  circulat- 
ing notes  not  on  interest,  to  convert  them  into  coin 
on  demand  of  any  holder.  It  is  this  proffered  con- 
vertibility into  coin  that  enables  the  promissory  notes 

Xj^taa/^o^U^  of  a  bank  to  circulate  as  money,  while  the  notes  of 
-  ^lAv  -  other  corporations  and  individuals  equally  solid  and 
/tvtx-v^^«  solvent  do  not  circulate  as  money.  It  must  be  borne 
in  mind,  however,  that  the  offer  to  convert  thsm  into 
cash  does  not  essentially  alter  the  nature  of  bank- 
notes ;  they  are  a  form  of  credit ;  and  although  they 
are  commonly  issued  against  another  form  of  credit, 
namely,  against  the  interest-bearing  notes  of  individ- 

■X^x  ..w..^  lU-'  "^^^  ^^^  resort  to  the  bank  for  discount,  this  only 
'.w.^  Wv^  complicates  the  exchange  without  changing  its  na- 
>  ture.     It  is  an  instance  of  exchanging  one  form  of 

credit  for  another  which  happens  to  have  a  greater 
currency  or  validity  than  the  first,  and  for  this  supe- 
riority of  the  bank  credit  the  individual  credit  pays 

^  Appleton's  Annual  Cyclopaedia,  18G3.    Article,  "Finances." 


ON   CREDIT.  371 

an  interest,  in  other  words,  is  discounted ;  and  such 
exchanges  of  one  form  of  paper  credit  for  another, 
with  or  without  a  premium,  may  go  on  indefinitely ; 
as  credit  money,  such  paper  may  serve  as  a  medium  . 
in  many  exchanges  ;  but  ultimately,  and  before  the 
entire  series  of  transactions  is  closed,  such  paper  is 
to  be  redeemed  in  coin,  or  taken  in  by  the  banker  in 
payment  of  some  debt  due  to  him,  in  both  which 
cases  it  is  extinguished  as  an  instrument  of  credit. 
Credit-paper  of  all  kinds  is  very  open  to  settlement 
by  set-off. 

(4.)  Bank  Deposits.     A  hank  is  an  institution  for  3,1,0^1  U^ 
the  creation,  management,  and  extinction  of  credits, 
A  banker  is  a  dealer  in  credits.     As  a  merchant  is  ^''^^^  ^  "■ 
a  buyer  and  seller  of  commodities,  so  a  banker  is  a 
buyer  and  seller  of  credits,  buying  some  credits  with 
other  credits,   and  some   credits  with    money,  and 
money   also  with   credits.     The  word  bank   meant ^^**'"*^^ 
originally  a  mass,  an  accumulation;  as  we  still  say, ^>^-*^*^ - 
a  sand-bank,  and  the  banks  of  a  river.     When  first'^^'-i^^'*^^'^** 
applied  to   commercial   transactions,  as   it  was   in 
Venice  as  early  as  1171,  it  meant  a  common  con- 
tribution of  money  then  made  by  the  citizens  to  the 
state ;  and  also  the  place  where  commissioners  paid 
the  interest  on  this  loan,  and  the  shares  in  it  were 
transferred.     Both  of  these  meanings  inhere  in  the 
modern  word  bank.     A  bank  is  a  place  to  which 
the  money  of  other  people  is  brought,  as  well  as  the 
banker's  own  ;  and  hence  we  speak  of  banks  of  de- Soc-k^ -^  <^ 
posit:  it  is  a  place  in  which  one  form  of  credit  is^«.^^^<»^A^ 
exchanged  for  another  form ;  and  hence  we  speak  of  ^^"**^  ^^'^ 
banks  of  discount:  it   is  frequently  a    place  where ^^'*^^^ 
promissory  notes,  designed  to  circulate  as  money,  are 


372  ELEMENTS  OF  POLITICAL  ECONOMY.     , 

issued  ;  and  hence  we  speak  of  banks  of  circulation. 
These  three  are  the  main  functions  of  banks;  and 
of  these,  the  two  former  are,  while  the  third  is  not, 
essential  to  banking.     The  central  idea  in  banking 
is  for  the  banker  to  receive   his  customer's  money 
and  credits  becoming  due,  and  to  render  in  return 
for  these  a  credit,  that  is,  a  right  to  demand  from 
him  an  equal  sum  at  a  future  time.     The  evidence 
»  «         V   ^^    of  this  right  is  entered  on  the  banker's  books,  and 
rV^J^         thus  becomes  a  Deposit.     The   ownership  of  the 
money  and  of  the  credits  deposited  passes  over  com- 
pletely from  the  customer  to  the  banker.     The  latter 
has  the  right  to  do  just  what  he  pleases  with  them ; 
only  his  entry  of  the  transaction  in  his  books  is  a 
virtual  promise  to  pay  that  amount  on  demand  to 
the  customer,  and  he  must  be  ready  to  respond  to 
his  customer's  call,  whenever  the  latter  demands,  not 
his  own  money,  but  so  much  of  his  banker's  money. 
A  deposit,  therefore,  is  not  the  thing  deposited,  but 
a  credit.      It   is  the  depositor's   property  and   the 
banker's  promise.     It  is  in  this  way  that  a  banker 
^^^^^,^^,^^:^,buys  money  with  credit.     The  motive  that  leads  the 
..^  jU,Q^ii  -  customer  to  intrust  his  money  to  the  banker  is  the 
rmt^^^  ^rtUi^desire,  not  to  have  that  specific  money  kept  safely, 
\^j^j^Xi  '<         ^"*  *^  ^^^^  *he  right  to  call  on  the  banker  for  such 
sums  (not  to  exceed  the  deposit  in  the  aggregate) 
and  at  such  times  as  may  suit  his  own  convenience. 
.     He  has  such   confidence  in  the  integrity  and  sol- 
vency of   the   banker,  and    finds   it    so    practically 
convenient  to  have  dealings  with  him,  that  he  pre- 
fers a  credit  on  him  for  the  amount  to  the  posses-  ^ 
sion  of  the  money  itself.     The  motive  of  the  banker 
•^^i,^^^  to  receive  his  customers'  funds  on  these  terms  is  the 


ON   CREDIT.  373 

fact  that  he  can  safely  use  a  large  portion  of  these 
funds  in  other  operations  in  credit  profitable  to  him- 
self, and  at  the  same  time  be  sure  of  being  able  to 
meet  his  customers'  calls  for  money      He  finds  by 
experience  that  many  of  his  customers  wish  always 
to  have  a  balance  in  his  hands;  that  while  some  of 
them  are  constantly  drawing  on  him  for  cash,  others/^e-w  ^-»-*< ' 
of  them  are  as  constantly  depositing  with  him  in^^»-v«/^<c->^/»>v„ 
cash,  and  that  consequently  he  can  use  with  safety  aXy  ^r^  x.cCj^ 
part  of  the  money  he  has  purchased  with  his  credit-^ "^-^^^  T 
to  purchase  other  credits  with.     The   gain   for  the  o 

whole  community  is,  that  a  new  capital  has  been'^^''*^  Jww  a 
thereby  created,  a  new  purchasing-power,  something*^^^^*^  ^cjJX 
in  the  world  of  value  additional  to  what  existed  be-^*-*^^  ^^^-^^ 
fore.     This  addition  is  not  indeed  unlimited,  but  it 
is  actual ;  not  unlimited,  because  all  credit  is  the 
right  to  demand  something  in  future,  and  the  value 
of  the  credit  is  the  prospective  value  of  that  some- 
thing, and  if  that  something  fails  to  come,  the  value 
of  course  is  gone ;  but  actual,  because  the  right  to 
a  future  product,  authenticated  in  credit,  has  a  pres- 
ent value.     The  true  limits  of  credit  can  be  learned 
only  by  experience ;  dangers  in  credit  arise  from  the 
uncertainties  of  the  future ;  but  the  property  in  credit 
and  the  propriety  of  credit  and  the  potency  of  credit       /; 
are  certain.     Value  has  its  sphere  of  operations  in  ^J^-^*^  %  ^ 
the  Past  through  commodities  already  completed,  in  '^"^^^^^^"^ ■'^ 
the   Present  through  personal  services  ready  to  be 
rendered,  and  in  the  Future  through  credits  awaiting 
further  production. 

(5.)  Bank   Discounts.       The   paper  that  is   dis-  Bt»'*v^^'<«'" 
counted  by  bankers  may  be  either  the  promissory     «    . 
notes  already  characterized,  or  the  bills  of  exchange  ^^^^'^  y*'^ 


374  ELEMENTS  OF  POLITICAL  ECONOMY. 

soon  to  be  characterized,  but  the  function  of  dis- 
count is  so  peculiar  that  the  paper  subjected  to  it 
must  be  separately  enumerated   in  a  classification 
of  the  instruments  of  credit.     The  discounting  of 
h^eov*-i:it*-*X.  pgjpej.  is  the  second  essential  function  of  banking; 
Lt.i^i^  Atufi^xiu  a„(j  it  is  more  in  accordance  with  genuine  banking' 
'*^*^^  It        to  pass  the  price  of  the  paper  to  the  seller's  credit 
^^^"^^^^ '        i(,  the  form  of  a  deposit,  that  is,  to  buy  one  credit 
by  creating  another,  than  to  pay  the  money  over  at 
once.     Those  who  do  the  latter  are  called  in  Eng- 
fL*V*^  ^ ;  land  bill-discounters  rather  than  bankers,  but  most 
(X.o*v-»-*"A>T^'w  ^£  ^^j,  ]3ankers  do  both,  though  there  is  a  strong 
^.i.;!^?  H^-p'  tendency  towards  the  separation  of  the  two  in  this 
^f  <i.-^>U*'Cc*      country  also.      Manufacturers   and  wholesale  mer- 
^^        chants  usually  sell  goods  on  time,  as  it  is  called, 
say  three   months.     A  debt  is  thus   created.     The 
manufacturer  or  wholesaler  is  creditor  and  the  jobber 
wM-  ^  A>t^^--^^j  retailer  is  debtor.     But  a  debt  is  property  ;  and 
i^kL>!  the  creditor  in  this  case  wishes  to  avail  himself  of 

his  property  at  once  for  further  production  ;  so  he 
either  takes  a  note  from  his  debtor,  or  draws  a  bill 
upon  him,  and  this  piece  of  property  is  ready  for 
sale.  The  banker  buys  it,- that  is  to  say,  the  cred- 
itor passes  over  to  him  the  right  to  demand  payment 
of  the  debtor  at  the  end  of  three  months,  and  receives 
from  the  banker  either  money  or  so  much  of  the 
banker's  credit,  that  is,  a  deposit  in  the  creditor's 
favor  on  the  banker's  books.  For  furnishing  this 
creditor  either  with  ready  money  or  a  more  availa- 
ble credit  in  lieu  of  his  mercantile  paper,  the  banker 
charges  a  percentage.  This  is  discount.  Discount 
is  the  difference  between  the  face  and  the  price  of 
the  paper.     This   is   the  chief  source  of  profit  in 


ON  CREDIT.  875 

ordinary  banking.  When  the  paper  matures,  the 
banker  realizes  from  the  debtor  its  full  face.  The 
following  is  the  form  of  a  bankable  note :  — 


5$1000.  North  Adams,  Mass.,  Nov.  10,  1871. 

Three  months  after  date  I  promise  to  pay  to  the  order 
of  Joshua  Swan,  one  thousand  dollars,  payable  at  the  Adams 
National  Bank,  value  received. 

Due  Feb.  ^°/i3.  Leander  Allek. 


Joshua  Swan's  name  on  the  back  of  this  paper, 
and  the  requisite  government  stamp,  make  it,  if  the 
parties  are  *'  good,"  a  legal  and  acceptable  note  for 
discount.  Two  names  are  usually,  not  always,  re- 
quisite ;  but  paper  is  discounted  on  the  strength  of 
all  the  names  that  are  upon  it. 

It  is  thus  in  part  through  the  purchase  of  dis- 
countable notes  for  money  that  banks  derive  their 
character  as  money-lenders.  Also,  such  resferve 
sums  as  they  do  not  wish  to  invest  in  negotiable 
paper,  on  account  of  the  time  involved  before  such 
paper  matures,  banks  frequently  loan  on  call  to 
those  who  have  salable  collateral  securities  to 
pledge.  So  far  forth  they  become  direct  money- 
lenders. The  following  is  the  form  of  such 
pledge :  — 


376 


ELEMENTS   OF  POLITICAL  ECONOMY. 


r« 


^1*V 


$5000.  Troy,  N.  Y.,  Nov.  10,  1871. 

On  demand  we  promise  to  pay  to  the  Bank  of  Troy,  or 
order,  five  thousand  dollars,  for  value  received,  with  interest  at 
the  rate  of  six  per  cent,  per  annum,  having  deposited  with  said 
bank,  as  collateral  security,  with  authority  to  sell  the  same,  at 
the  Brokers'  Board,  or  at  public  or  private  sale,  or  otherwise 
at  said  bank's  option,  on  the  non-performance  of  this  promise, 
and  without  notice,  — 

10  shares  N.  Y.  Central, 

55    do.    Mich.  Southern.  John  Smith  &  Co. 


The  form  of  the  paper  to  be  discounted  makes  but 
little  difference  to  the  banker ;  a  note  is  as  good  as 
a  bill  and  a  bill  is  as  good  as  a  note  ;  his  chief  con- 
cern is  with  the  genuineness  and  financial  solidity 
of  the  names ;  but  he  is  not  always  in  condition  to 
discount  all  the  paper  that  is  offered,  in  which  case 
he  accommodates  regular  customers  and  depositors 
first. 

We  now  come  to  three  other  forms  of  credit,  which 
are  virtually  orders  to  pay. 
(6.)     Bills  of  exchange.     A  bill  of  exchange  is  a 
'     written  instrument  designed  to  secure  the  payment 
'  y^^y. .    of  a  distant  debt  without  the  transmission  of  money, 
being  in  effect  a  setting  off  or  exchange  of  one  debt 
^^/^^luL       against  another.     Thus,  suppose  A  in  Boston  owes 
^K^mIjuS  ^  ^"^  ^^^  "Yoxk  $1000,  and  another  party,   C  in 
'^'    /t.wo— 4-*^  '^Q'w  York,  owes  A  in  Boston  a  like  sum;  it  is  not 
(w-3^v-v,a.  necessary  that  A  should  send  the  money  to  B  to 
Aw  i^t  >;S  cancel  his  debt,  and  C  send  the  money  to  A  for  a 
f^  Mw-<  ?         like  purpose ;  the  two  debts,  by  means  of  a  bill  of  ex- 
change, are  set  off  against  each  other,  and  both  trans- 
actions are  closed  without  sending  any  money  from 
one  city  to  the  other.     A  draws  a  bill  upon  C,  direct- 


ON   CREDIT.  377 

ing  him  to  pay  B  $1000,  and  sends  this  bill  to  B, 
who,  if  the  bill  be  drawn  on  sight,  presents  it  to  C 
for  payment;  if  on  time,  presents  it  to  C  for  accept- 
ance, who  then  pays  it  at  maturity.  An  acceptance 
is  written  upon  the  face  of  a  bill,  as  an  endorsement 
is  upon  its  back.  A  is  called  the  drawer  of  the  bill, 
C  the  drawee  until  he  has  accepted,  and  then  the 
acceptor,  and  B  is  the  payee.  It  is  not  often  that 
the  same  person,  as  A,  happens  to  owe  another  per- 
son in  a  distant  place,  as  B,  exactly  the  same  sum 
as  is  owed  him  in  that  place  by  a  third  person  as  C; 
but  by  two  bills  of  exchange,  one  drawn  by  each 
creditor  on  his  own  debtor,  and  then  set  off  against 
the  other,  substantially  the  same  advantage  is  reached 
as  if  it  always  happened  so.  Nearly  all  these  bills 
come  into  banks  in  the  way  of  ordinary  business, 
either  for  discount  or  collection,  and  are  adjusted 
through  bank  balances.  The  following^  is  the  form 
of  an  inland  bill  of  exchange :  — 


$3000.  PiTTSFiELD,  Mass.,  Oct.  1,  1871. 

Four  months  after  date  pay  to  the  order  of  John  Kent 
three  thousand  dollars,  value  received,  and  charge  the  same  to 
account  of  Dan  Storks  &  Co. 

To  Eli  Teipp,  Boston,  Mass. 


Kent  endorses,  Tripp  accepts,  the  stamp  is  affixed, 
and  the  bill  is  negotiable.  Sometimes  bills  are 
drawn  to  the  order  of  "  ourselves,"  in  which  case  the 
drawers  also  endorse.  Not  infrequently  a  bill  passes 
through  several  hands,  which  may  either  be  by  succes- 


378  ELEMENTS   OF  POLITICAL  ECONOMY. 

sive  endorsements,  specifying  to  whom  payment  is  to 
be  made,  or  by  what  is  called  an  endorsement  in  blank, 
by  which  is  meant  that  the  payee  or  subsequent  hold- 
er, to  whom  the  bill  has  been  endorsed,  merely  writes 
his  own  name  upon  the  bill,  which  is  equivalent  to 
making  it  payable  to  bearer.  The  remarkable  conven- 
ience of  bills  of  exchange  in  adjusting  debts  between 
distant  places  has  already  brought  them  into  very 
general  use  wherever  the  necessary  basis  for  them 
in  commercial  integrity  is  supposed  to  exist;  and 
every  year  is  witnessing  an  extension  of  their  use 
aWm.  «^-h.  W^  ^'^  ^^^  commercial  countries.  Bills  of  exchange  are 
[jLr^cU^o^^^  either  payable  at  sight,  or  after  an  interval  fixed  in 
•xA^tijAUr'^'  the  bill  itself;  and  are  either  inland  or  foreign  bills. 
Bills  which  have  some  time  to  run  before  maturity 
are  frequently  discounted  by  bankers  or  other  money- 
lenders, that  is  to  say,  the  payee  transfers  the  bill  to 
them,  receiving  the  amount,  minus  interest  for  the 
time  it  has  still  to  run ;  and  the  bill  thus  serves  the 
important  function  of  enabling  a  debt  due  from  one 
person  to  be  made  available  for  obtaining  credit 
from  another.  It  is  a  principal  part  of  the  business 
of  banks  to  buy  in  this  manner  bills  of  exchange, 
either  real  bills,  or  accommodation  bills,  so  called, 
which  only  differ  from  the  others  in  that  there  is  no 
real  debt  between  the  drawer  and  drawee,  and  col- 
lect them  at  maturity,  thus  securing  bank  interest 
W  iaaU' k.7^t«  ^^  ^^^  money  paid  in  purchasing  such  bills.  The 
'u*%Aj>,'Ti-^^'  bills  are  discounted  on  the  joint  credit  of  the  drawer 
and  acceptor.  It  is  evident  that  the  use  of  bills  of 
exchange,  especially  those  which  pass  from  hand  to 
hand  by  endorsement,  dispenses  with  the  use  and 
transmission  of  large  amounts  of  money,  and,  as 


ON  CREDIT.  379 

between  distant  places  especially,  is  one  of  those 
economizing  expedients  of  credit  which  are  the 
birth  of  modern  civilization  and  a  sound  mercantile 
honor.  *^ 

Very  similar  are  foreign  bills  of  exchange  in  their  ^^^^  ^j;^ 
functions  and  usefulness.  Commercial  relations  he-j^^i^^^^ 
tween  two  countries,  say  for  example,  France  and 
England,  always  give  rise  to  a  mutual  indebtedness 
of  their  merchants,  and  if  these  debts  were  all  to  be 
paid  by  the  actual  sending  of  money  to  and  from, 
there  would  have  to  be  a  constant  and  expensive 
outward  and  inward  flow  of  the  precious  metals  in 
respect  to  each  country,  which  necessity  is  neatly 
obviated  by  the  use  of  bills  of  exchange,  and  coin 
is  only  transmitted  to  settle  the  balances  on  which- 
ever side  there  is  an  excess  of  debt.  French  dealers 
are  always  sending  goods  to  England,  and  English 
dealers  goods  to  France ;  and  for  what  they  send  to 
England  the  French  merchants  draw  bills  on  the 
parties  to  whom  the  goods  are  consigned,  and  the 
English  merchants  draw  similar  bills  on  their  debt- 
ors in  France ;  these  bills  are  bought  up  by  bankers 
or  brokers  in  either  country,  and  exposed  again  for 
sale  to  any  parties  who  may  have  debts  to  pay  in 
the  other  country.  Thus  bills  on  London,  in  other 
words,  on  English  debtors,  are  always  for  sale  in 
France;  and  bills  on  France,  that  is,  on  French 
debtors,  are  always  for  sale  in  London ;  the  mutual 
debtors  of  the  two  countries,  therefore,  instead  of 
sending  coin  to  cancel  their  debts,  buy  and  trans- 
mit these  bills.  As  I  wish  to  make  the  course  and 
par  of  international  exchange  very  plain  to  my  read- 
ers, I  will  give  a  particular   illustration.     Suppose 


380  ELEMENTS  OF  POLITICAL  ECONOMY. 

^^-^..viv*^  Pierre  &  Co.,  of  Paris,  send  a  cargo  of  wine  to  Bar- 
clay &  Co.,  of  London,  worth  .£5000 ;  the  London 
firm  thereby  becomes  indebted  to  the  Paris  firm  to 
that  amount,  and  Pierre  &  Co.  draw  a  bill  on  Bar- 
clay &  Co.  for  X5000 ;  if  they  themselves  have  no 
debt  to  pay  in  London,  they  sell  this  bill  to  a  Paris 
broker  (if  the  exchange  be  then  at  par)  for  its  face, 
minus  interest  for  the  time  it  has  to  run ;  and  this 
broker  is  now  ready  to  sell  the  bill  again  to  anybody 
in  Paris  who  has  a  debt  to  pay  in  London ;  and  the 
person  in  London  who  receives  it  in  liquidation  of  a 
French  debt  to  him,  presents  it  at  maturity  to  Bar- 
clay &  Co.  for  payment.  A  bill  drawn  in  London 
for  a  cargo  of  hardware  sent  to  Paris,  is  similarly 
negotiated  with  a  London  broker,  and  finds  its  way 
similarly  to  France,  in  payment  of  some  English 
debt,  and  ends  its  career  when  it  reaches  the  French 
firm  on  which  it  was  originally  drawn.  We  are 
now  in  position  to  understand  clearly  what  is  meant 

(T^  <^^jd^^x.y,     ^^  ^jjg  p^  ^£  exchange.     The  merchants  in  Paris, 

who  have  debts  due  to  them  in  London,  draw  bills 
of  exchange  for  the  amount  of  these  debts,  and, 
through  the  agency  of  middlemen  or  brokers,  go 
into  the  market  to  sell  these  bills  to  other  Paris  mer- 
chants who  have  debts  to  pay  in  London.  If  the 
former  set  have  a  larger  amount  to  sell  than  the 
latter  have  occasion  to  buy,  in  other  words,  if  there 
be  a  larger  amount  of  debts  due  from  London  to 
Paris,  than  from  Paris  to  London,  then  the  compe- 
tition of  the  sellers  of  bills  on  London  will  lower 
their  price  somewhat  in  the  market,  in  order,  as 
usual,  that  the  supply  and  demand  may  be  equal- 
ized.    In  this  case  the  par  of  exchange  is  disturbed, 


ON  CREDIT.  381  *^ 

a  bill  on   London  for  <£100  may  not  sell  for  over 
£99,  and  the  exchange  is  then  said  to  be  one  per 
cent,  against  London,  or,  which  is  the  same  thing, 
one  per  cent  in  favor  of   Paris.     The   par  of  ex-^     iJLU^ 
change,  therefore,  between   two   countries,  depends    ^  ^^ 

upon  the  substantial  equality  of  their  mutual  debts ;\'^r' 
and  if  an  exchange  unfavorable  to  either  continues   "^ 
long,  and  especially  if  the  discount  on  its  bills  be  ^icU-  'i  ^■ 
sufficient  to  cover  the  charges  of  the  transmission  of  ^tJju^eU^c^ 
specie,  gold  will   begin  to   flow  from   the  country  *tt  UlloI 
against  which   the   exchange   has  turned,  and  the 
equilibrium  of  payments,  and  hence  the  par  of  ex- 
change will  be   restored.     Also,  the   par  tends  to 
restore  itself,  without  the  sending  of  specie,  in  this 
way :  if  bills  on  London  are  at  a  discount  in  Paris,  /u^  ^  /-^-r- 
for  the  same  reason  that  they  are  so  will  bills  on^t.^.^Zr^HjC'^ 
Paris  be  at  a  premium  in   London,  and   therefore 
there  will  be  a  direct  encouragement  to  the  extent  -^ 

of  the  premium  for  exportations  from  England  to 
France,  because  on  every  cargo  sent  bills  can  be 
drawn  and  sold  in  London  for  a  premium ;  but  the 
more  bills  on  Paris  thus  offered,  the  more  the  pre- 
mium disappears,  and  the  par  of  exchange  is  restored 
so  soon  as  the  debts  thus  contracted  by  France  are 
equal  to  the  debts  due  her  from  England.  At  the 
same  time,  and  so  long  as  the  discount  on  London 
bills  continues,  there  is  a  discouragement  to  further 
exportations  from  France  to  England,  because  the 
bills  drawn  in  virtue  of  such  cargoes  can  only  be 
sold  below  par.  Here  is  another  instance  of  a  mag- 
nificently comprehensive  law  by  which  Nature  vindi- 
cates her  right  to  reign  in  the  domain  of  exchange. 
It  is  through  this  law,  stimulating  exportations  on 


AAuo^4<^-uv.. 


ev 


WaaV^    ^ 


382  ELEMENTS   OF   POLITICAL  ECONOMY. 

the  one  side,  and  slackening  them  on  the  other,  that 
most  of  the  casual  disturbances  of  the  par  of  ex- 
change are  rectified;  but  if,  notwithstanding  this, 
the  disturbance  continues  obstinate,  it  indicates  one 

I  ^     oi  two  things  as  true  of  the  country  against  which 

*^'*^  '''^  the  exchange  has  turned :  it  has  either  made  over- 
purchases  of  the  other  country  beyond  the  power  of 
its  ordinary  exports  to  cancel,  or  the  money  in  which 
the  bills  drawn  on  it  are  liable  to  be  paid  is  an 
inferior  money.  In  the  first  case,  the  only  proper 
remedy  is  an  export  of  gold  to  pay  off  the  old  scores, 
and  a  more  prudent  method  of  purchasing  in  the 
future;  in  the  second  case,  which  is  well  exemplified 
in  the  instance  of  Amsterdam,  cited  in  a  preceding 
chapter,  the  remedy  is  to  raise  the  currency  to  a 
good  specie  standard.  When  the  rates  of  exchange 
^^4  ■  *    ^'^^®     ^^*  established    between    England    and   the 

^^'^^^y^  '  Colonies,  the  Mexican  dollar  of  commerce  was  equal 

in  value  to  45.  M.  English,  <£!  =  4.44  dollars,  and  the 
par  of  exchange  was  established  at  that  rate.  U.  S- 
dollars  have  always  been  less  valuable  than  that 
Mexican  dollar,  and  while  the  old  par  has  remained 
the  standard,  the  real  par  has  been  changed  by  each 
change  in  our  coins.  Our  present  dollar  contains 
23.22  grains  of  pure  gold;  the  English  pound  con- 
xains  113.001  grains,  consequently  the  true  par  of 
exchange  is  $4.8665  to  the  <£,  and  by  recent  law  of 
Congress  is  expressed  by  100.  The  par  of  exchange 
between  France  and  the  United  States  is  5  francs 
18  centimes  (very  nearly)  for  $1 ;  since  the  franc  is 
nineteen  cents  and  three  mills  of  our  money. 

(7.)   Checks.   Formerly,  in  England,  and  in  other 
countries  as  well,  every  considerable  dealer  kept  his 


IK.* 


ON  CREDIT.  883 

strong  box,  and  when  he  had  occasion  to  make  pay-  C-^  U^o^vJ 
ments,   told    down    the    solid   cash    upon    his   own 
counter.     Afterwards,    the    goldsmiths    of   London  ' 
solicited  the  honor  of  keeping  in  their  vaults  the 
spare  cash  of  the  merchants,  who  in  their  payments 
among  one  another  came  to  employ  checks  drawn 
on   the  goldsmiths,  and  at  the  shops  of  the  latter 
the  principal  payments  in  coin  were  effected.     The 
later  introduction  of  banks   brought  along  with  it 
the  custom,  now  continually  widening  in  commercial 
countries  among  all  classes   of  people,  of  keeping 
one's  funds  with  a  banker,  and  making   payments 
by  orders,  or  checks,  upon  him.     When  the  person 
making  the  payment   and  the   person   receiving  it 
keep  their  money  with  the  same  banker,  there  is  no 
need  of  any  money  passing  at  all  in  the  premises, 
the  sum  being  merely  transferred  in   the  banker's 
books  from  the  credit  of  the  payer  to  that  of  the 
receiver.     The   banker   is   quite  willing  to   do  thisHf^^^^*^ 
business  for  nothing,  and  even  to  allow  the  depos-^'^*^  "^^^^^  ^^" 
itors  a  low  rate  of  interest  on  all  balances  remaining "Wha^^-^  ^ 
in  his  hands,  in  consideration  of  the  privilege  he  en-'"-^  'u>*^n,'* 
joys  of  loaning  such  proportion  of  the  sums  as  he 
deems  safe  to  other  parties  at  a  higher  rate  of  inter- 
est.    In  the  large  cities,  by  an  arrangement  called  /^f^^^^  [ 
"  the  clearing-house,"    substantially  the   same  ben-  ^" 

efits  are  secured  as  if  all  the  people  of  the  city 
kept  their  cash  at  the  same  bank ;  inasmuch  as  all 
the  checks  drawn  on  each  of  the  different  banks, 
and  passing  in  the  course  of  the  business  day  into 
other  banks,  are  assorted  before  evening  at  the  clear- 
ing-house, and  set  off  as  far  as  possible  against  each 
other,  leaving  only  balances  to  be  adjusted  in  money. 


384  ELEMENTS  OF  POLITICAL  ECONOMY. 

The  London  clearing-house  was  established  in  1775 ; 
lately,  the  clearing-house  itself,  and  the  bankers  and 
firms  dealing  with  it,  all  have  accounts  at  the  Bank 
of  England,  and  balances  formerly  settled  by  money 
are  now  settled  by  simple  bank  transfers.  In  the 
year  1872,  ^5,359,272,000  passed  that  clearing  in 
that  way,  and  there  are  besides  many  other  clearing- 
houses in  Great  Britain.  Checks  may  pass  from 
hand  to  hand  by  endorsement;  but  in  business 
towns  it  is  more  usual  for  each  man  to  draw  his 
own  check  to  make  payments,  and  pass  in  the 
checks  he  receives  to  his  banker.  Checks  are  bills 
of  exchange  with  some  differing  legal  incidents.  So 
are  drafts.  A  bill  of  exchange  drawn  by  one  banker 
on  another  has  usually  in  this  country  been  termed 
a  draft. 

(8.)  Circular  Letters  of  Credit.  These  are  issued 
by  bankers  to  their  foreign  correspondents,  ordering 
them  to  pay  to  the  person  named  in  the  letter  such 
sums  of  money  as  may  suit  his  convenience,  not  to 
exceed  in  the  aggregate  the  limit  mentioned  in  the 
letter  itself.  To  travellers  in  foreign  countries  such 
a  letter  of  credit  is  much  more  convenient  than  to 
carry  the  money  ;  because,  in  the  first  place,  they 
y^^  can  obtain  money  on  it  in  all  the  principal  cities  of 
the  world  in  just  such  sums  as  they  need;  in  the 
second  place,  they  have  to  pay  for  no  more  credit 
than  they  actually  use ;  in  the  third  place,  the  letter 
is  available  for  no  one  else,  and  so  is  not  liable  to  be 
stolen,  though  it  may  be  lost;  and  in  the  fourth 
place,  the  money  need  not  be  deposited  with  the 
banker  at  home  any  faster  than  it  is  actually  called 
for  abroad. 


I 


ON  CREDIT.  335 

These  eight  are  the  principal  forms  of  instruments 
of  credit;  and  we  must  now  observe  that  credits  ,._  , 
are  extinguished  in  four  different  ways:  first,  by  a  7^,^^., 
payment  in  money,  which  puts  a  commodity  in 
place  of  the  credit,  and  annihilates  the  latter;  sec- 
ond, by  a  release  of  the  debtor  from  the  obligation 
to  pay  by  the  free  act  of  the  creditor,  which  of 
course  extinguishes  his  right  to  demand  ;  third,  by 
renewal,  either  to  the  creditor,  or  to  some  other 
person  with  his  consent,  as  becomes  the  case  with 
persons  receiving  checks  or  bills  of  exchange ;  and 
fourth,  but  principally,  by  set-off,  as  in  book-ac- 
counts and  at  the  clearing-house,  since  a  mutual 
release  from  debts  becomes  a  mutual  payment  of 
debts.i  Thus  we  see  that  most  credits  extinguish 
each  other,  and  balances  only  remain.  Credits  are 
like  a  circle,  which  returns  perpetually  into  itself. 
Some  of  the  advantages  of  credit  have  been  already 
anticipated  in  the  discussion  of  its  principal  forms; 
but  we  will  now  instance  more  specifically  a  few  of 
these  advantages. 

1.  There  are  some  men,  and  particularly  young^^^' *<^  > 
men,  who  have  integrity  and  industry  and  skill,  bute^^^';' 
no  capital ;  and  when  such  men  are  enabled  to  borrow 
money  to  start  themselves  in  business,  or  to  enlarge 
a  business  already  in  successful  operation,  the  gen- 
eral interests  of  production,  as  well  as  their  personal 
interests,  are  subserved  by  such  credit,  because  in  all 
probability  capital  thus  passes  from  hands  which  are 
less  to  hands  which  are  more  able  to  use  it  produc- 
tively. Those  who  are  best  able  to  make  capital  tell 
are  generally  those  who  are  most  desirous  to  obtain 
it,  and  frequently  those  who  can  offer  the  best  secu- 

1  See  Macleod's  Economics,  pp.  517,  518. 


386  ELEMENTS  OF  POLITICAL  ECONOMY. 

rity  for  its  replacement.  Nothing  is  to  be  said  against, 
but  everything  in  favor,  of  such  a  loaning  of  capital 
as  shall  bring  it,  under  safe  conditions,  from  the  hands 
of  the  idle,  the  aged,  those  indisposed,  or  those  in- 
competent to  use  it  productively,  into  hands  at  once 
competent  and  honest.  Such  credit  is  a  benefit,  and 
only  a  benefit,  to  all  the  parties  concerned,  and  to 
society  at  large.  The  operators  retain  something  of 
profit  after  replacing  the  capital  with  interest;  the 
lenders  receive  more  than  if  their  capital  remained 
idle,  or  they  employed  it  themselves ;  and  society  is 
benefited  by  a  more  complete  development  and  rapid 
circulation  of  services.  Despite  all  the  instances  of 
broken  faith,  it  is  still  an  honor  to  human  nature  that 
men  do  so  gain  by  good  character  the  confidence  of 
their  fellows  that  they  are,  and  ought  to  be,  trusted 
with  capital  on  their  simple  word  or  note ;  and  it  is 
the  glory  of  free  political  institutions,  that  under  their 
influence,  more  than  elsewhere,  young  men  with  no 
other  dower  than  integrity  and  purpose  do  rise,  by 
the  help  of  so  slight  a  stepping-stone  as  this,  in 
crowds,  to  the  high  places  of  opulence.  In  the  point 
of  view,  that  thus  all  the  available  capital  of  the  com- 
munity is  brought  out  into  productive  activity,  too 
much  can  scarcely  be  said  in  favor  of  joint-stock 
companies,  whose  managers  are  known  to  be  men 
If-yil  of  probity,  which  gather  up  the  driblets  of  unoccu- 
pied capital  here  and  there,  and,  combining  them, 
enter  upon  paths  of  profitable  production,  which 
individual  enterprise  cannot  tread.  Too  much  can- 
not be  said  in  favor  of  savings-banks,  which  take  the 
surplus  earnings  of  the  poor,  and  not  only  keep  them 
eafely,  but  pay  a  fair  interest  on  each  deposit,  and 


ON  CREDIT.  387 

loan  the  aggregate  at  a  higher  rate  on  choice  secu- 
rities, thus  stimulating  frugality  in  a  wide  circle  of 
depositors,  and  at  the  same  time  aiding  production 
by  opportune  loans  to  the  best  class  of  borrowers. 
Here  too  come  in  life-insurance  companies,  whichv- 
illustrate  the  advantages  of  credit  in  a  most  gratify-^^ 
ing  light,  and  whose  action  I  hope  to  see  extended 
to  larger  and  larger  classes  of  men,  since  it  tends  to 
transmute  low  and  selfish  cares  into  a  noble  care  for 
those  who  are  to  come  after,  who  might  otherwise 
be  left  penniless  dependants,  and  by  elevating  and 
enlarging  the  views  of  men,  to  make  them  better  pro- 
ducers and  better  citizens.  In  this  category. of  the 
advantages  of  credit  come  also  the  ordinary  bank  dis- 
counts, made  for  short  periods  only,  holding  the  debt- 
or to  the  strictest  rules  of  payment,  only  professing 
and  only  enabled  to  help  customers  over  the  transient 
hard  places  in  their  business,  and  not  to  furnish  the 
funds  on  which  the  business  is  mainly  conducted. 
Sums  drawn  from  the  banks  on  credit  should  only 
form  a  part  of  the  circulating  capital  of  a  business, 
and  never  be  put  into  the  formj^J&xed  capitaL  The 
passing  necessities  of  a  business  having  an  indepen- 
dent basis  of  its  own  can  be  safely  and  conveniently 
met  by  bank  discounts.  So  far  as  the  capital  stock 
of  a  bank  is  made  up  of  small  subscriptions,  it  has 
the  advantage  just  spoken  of,  of  calling  otherwise 
idle  sums  into  activity ;  and  so  far  as  no  undue  priv- 
ileges are  accorded  to  it  by  law,  there  is  no  branch 
of  industry  more  legitimate  and  beneficial  than  bank 
.ng.  It  is  no  essential  part  of  the  functions  of  a 
bank,  that  it  manufacture  and  issue  money ;  the  ^ 
money  it  loans  should  be  the  national  money;  and^^ 


388  ELEMENTS  OF  POLITICAL  ECONOMY. 

if  that,  unfortunately,  be  credit  nnoney,  the  element 
of  credit  in  the  money  should  be  sharply  discrimi- 
nated in  the  public  mind  from  that  element  of  credit 
by  which  the  bank  loans  it  to  its  customers.  Bank 
hJ^^y*^^^,  credits  are  good,  but  that  does  not  prove  that  credit 
,^^^  ^money  is   good;    and   it   was   one   ground  of   the 

'  viciousness  of  the  late  banking  system  of  the  United 

States,  that  the  different  kinds  of  credit  involved  in 
it  were  inextricably  interwoven  with  each  other  in 
the  common  apprehensions,  and  when  the  money 
failed  utterly,  as  it  did  repeatedly,  to  answer  the  pur- 
poses of  money,  people  could  not  exactly  tell  whose 
fault  it  was. 

2.  There  is  another  class  of  advantages  in  credit, 
which  do  not  depend  so  much  on  the  transfer  of 
capital  from  less  to  more  productive  hands,  as  on  the 
facilities  which  credit  affords  in  economizing  the  gen- 
'u-  hu^^v.   eral  operations  of  exchange.     Here  the  advantages 
.<^«^  «^are  derived  from  the  convenience  of  settling  accounts 
jul^^^M         arising  out  of  exchanges,  rather  than  from  the  char- 
acter of  the  exchanges  themselves.     Look,  for  ex- 
ample, at  bills  of  exchange.     They  serve  to  settle  up 
the  accounts  arising  from  the  commerce  of  two  con- 
tinents, with  but  little  transmission  of  money  from 
either,  and  with  but  little  loss  of  time.     Bills  drawn 
in  New  York   on  London  are  usually  payable    at 
sixty  days'  sight;  and  the  merchant  dispatching  a 
ship  is  able  to  realize  at  once  the  value  of  her  cargo, 
minus  interest  for  the  time  his  bill  has  to  run  ;    he  is 
indeed  still  liable  in  part  to  see  that  his  bill  is  ulti- 
-  mately  paid  by  his  drawee;  but  the  commercial  integ- 
rity of  the  leading  houses  in   all  countries  is  with 
iustice  so  firmly  believed  in  and  acted  on,  that  on  the 


ON  CREDIT.  889 

whole  but  little  anxiety  springs  from  this  source.  It 
is  one  of  the  noble  things  in  international  commerce 
that  men  trust  each  other  across  the  oceans,  and  lay 
millions  of  value  on  the  faith  of  a  single  firm.  Inland 
bills  of  exchange  equally  facilitate  settlements  within 
the  country  itself;  and  checks  contribute  to  the  same 
end  even  more  simply,  passing  readily  in  payments 
wherever  the  parties  are  known,  and,  though  credit, 
doing  the  work  of  money  more  conveniently,  and 
within  certain  limits  as  safely  as  money  itself  could 
do  it.  The  face  of  a  check  drawn  to  the  amount  of 
his  deposit  in  favor  of  another  depositor  is  trans- 
ferred in  the  banker's  books  from  the  credit  of  the 
drawer  to  that  of  the  payee.  The  banker  is  released 
from  one  debt  by  creating  another  of  equal  amount 
The  drawer  is  released  from  a  debt  by  causing  an- 
other debt  to  be  transferred  to  the  payee.  The  payee 
is  paid  by  the  drawer  by  the  receipt  of  another  debt. 
Thus  we  see  that  a  release  from  a  debt  is  the  same 
thing  as  a  payment  in  money ;  and  we  saw  in  the 
paragraph  on  bills  of  exchange  that  the  mutual  re- 
'ease  from  debts  is  the  same  thing  as  a  reciprocal 
payment  of  debts. 

3.  It  is  not  strange  that  some  thinkers  and  writers, 
seeing  these  unquestionable  benefits  of  credit  even  ^W>i>- 0^^  (,^ 
within   the   peculiar   sphere   of   money  itself,  ho.vek^^^'-f^^M^^  i^ 
come,  like    Herbert    Spencer   and   many   others,  to'^-'^^^v^ 
think  and  teach  that  credit  might  answer  all  the  pur- 
poses of  money.     It  is  certain  that  it  answers  some  ^^^^v  ^^^^^Z 
of  the  purposes  of  money.     Suppose  A  has  bought  ''^  ^  '^  ""^ 
of  B  $100  worth  of  goods,  and  B  has  bought  of  Aj^J^;;;^^ 
$125  worth  of  another  kind  of  goods.     Three  ways.,^^^^ 
are  open  to  close  up  these  transactions.     A  may  pay  7 


390  ELEMENTS  OF  POLITICAL  ECONOMY. 

B  and  B  may  pay  A  in  money.  This  would  take 
$225.  A  may  pay  B  in  money,  and  B  may  send  it 
back  with  $25  more.  This  would  take  $125.  Or 
A  and  B  may  mutually  balance  books,  and  B  pay 
the  difference  in  account.  This  would  take  $25.  It 
is  clear,  that,  as  one  or  other  of  these  methods  pre- 
vails in  practice,  the  quantity  of  money  required  to 
do  the  business  of  a  country  is  very  different.  So  in 
international  trade.  Foreign  bills  of  exchange  lessen 
enormously  the  quantity  of  money  that  would  other- 
wise have  to  be  transported.  Credit  does  take  the 
place  of  money  in  part.  Can  it  take  the  place  of 
money  entirely  ?     I  think  «ot. 

We  have  defined  credit  as  a  right  not  yet  realized. 
'l^.'v^CT^h  ^i^v  ppi^g  denominations  of  money  are  certainly  needful 
k^yx^^^  ,^VvKv^,  in  order  to  measure  this  right;  and  I  do  not  see  how 
the  denominations  of  money  can  be  maintained  at 
all  separately  from  the  use  of  money  itself  as  a  me- 
dium. Moreover,  great  as  is  the  undoubted  power 
of  credit,  it  waits  for  something  beyond  itself;  it 
waits  for  realization.  I  do  not  see  how  realization 
can  come  without  the  use  of  money,  at  least  to  set- 
tle balances.  Further,  there  always  have  been  hith- 
erto in  all  commercial  countries  longer  or  shorter 
periods  during  which  there  was  a  general  reluctance 
to  accept  the  ordinary  instruments  of  credit  in  ex- 
change. Money,  and  much  of  it,  was  then  found  to 
be  indispensable.  The  very  advantages  of  credit  it- 
self, which  have  now  been  explained,  are  dependent 
on  this,  that  there  be  underneath  it,  to  support  and 
limit  it,  a  solid  basis  of  value-money,  in  whose  de- 
nominations value  can  be  reckoned,  in  whose  coins 
the  balances  of  credit  can  be  struck,  and  whose  pres- 


M,y- 


ON  CREDIT.  391 

ence  secured  everywhere  by  natural  laws  alone  can 
enable  fulfillment  to  join  hand  in  hand  with  promise 
If  ever  credit  should  usurp  the  whole  domain  of 
money,  a  tolerable  standard  of  value  would  be  no 
longer  possible,  credit  itself  would  lose  its  foothold, 
and  the  vast  balloon  of  promise,  sailing  for  a  while 
through  the  blue,  the  joy  of  projectors  and  the  won- 
der of  credulous  spectators,  would  descend  on  a 
sudden  collapsed  and  ruined  to  the  earth. 

4.  Besides  the  two  essential  functions  of  banks,  re-/" 
ceiving  deposits  and  discounting  bills,  they  perform  ,  '^  .^  »  '  '^^ 
a   variety  of  other  legitimate   operations   in   credit. 
They  buy  and  sell  debts  of  all  sorts.     They  sell  their  /W,  «^  s-*-^ 
own  drafts  on   distant  places.     The   Scotch   banks-^^^'^"- 
have  long  practised  on  a  system  that  has  proved  ex- 
tremely beneficial  to  Scotland,  namely,  to  create  a 
drawina:  account  in  favor  of  a  deservina^  customer,"^^^^^^^^"^^  **  ^ ^ 
w^ho  has  no  deposits  in  the  bank,  but  w^ho  draws  out   ' 
and  pays  in  from  time  to  time  just  as  if  he  had,  and 
instead  of  receiving  interest  on  the  daily  balance  at 
his  credit,  he  pays  interest  on  the  daily  balance  at 
his   debit.      These    are   called    Cash    Credits.      Ofc.  /    /        i^- 
course,  only  banks  can  furnish  them  which  have  a 
superfluity  of  credit  to  sell,  and  they  are  safe  and 
useful  only  in  communities  in  which  men  are  well 
known  to  each  other.     Some  friends  of  the  parties 
thus   accommodated    always    guarantee    the    bank 
against  loss;  but  the  losses  have  proved  to  be  insig- 
nificant, the  gains  to  be  marvelous,  and  this  form  of 
credit  issued  on  the  basis  of  no  previous  transaction 
illustrates  better  than   any  other  tht  orinciple  that 
credit   is    capital.      Our   own    new   na  *onal   banks 
have   done   an   immense   business   in   the  national 


892  ELEMENTS   OF  POLITICAL  ECONOMY. 

bonds.  They  have  been  instrumental  in  diffusing 
these  bonds  among  the  people.  They  collect  for 
their  customers  the  coupons  at  maturity.  They  are 
the  factors  of  the  government  in  exchanging,  for 
those  who  desire  it,  one  species  of  bond  for  another. 
For  the  most  part,  all  these  dealings  of  bankers  in 
(Jebts, —  and  their  aggregate  amount  is  enormous, 
—  must  be  enumerated  among  the  advantages  of 
credit. 
u  .-  ^  There  are  some  natural  disadvantages  in  credit. 
V^  The  first  is,  that  when  it  is  much  given  by  dealers  to 
consumers,  the  reverse  results  take  place  from  those 
already  characterized,  and  capital  passes  out  from  the 
hands  of  productive  operators  and  becomes  tempo- 
rarily unavailable  as  capital.     When  an  industrious 

.4<A^  -    artisan  or  merchant  has  trusted  out  $1000  to  dilatory 
,     ,  .  customers  for  six  months  or  a  year,  it  is  so  much 

-  ^  ^  withdrawn  for  so  long  from  his  active  capital,  and  to 

make  up  the  consequent  loss  of  profit  there  must  be 
an  addition  to  the  prices  of  his  wares,  and  besides 
some  bad  debts  belong  to  such  a  system,  and  there 
must  be  an  additional  price  to  compensate  this,  and 
thus  the  customers  who  pay  promptly  bear  a  part  of 
the  proper  burden  of  the  delinquents,  who  at  least 
do  not  wholly  escape,  inasmuch  as  they  ultimately 
(if  they  pay  at  all)  pay  a  price  enhanced  by  their 
own  delay.  If  the  current  profit  of  capital  be  ten 
per  cent,  and  the  merchant  sells  and  gets  returns 

, .  ^„  ;    ,  five  times  a  year,  something  less  than  two  per  cent. 

•    •  '  »^    profit  may  be  charged  to  each  article,  but  if  he  only 
,^  .,  /      gets  returns   at  the  end   of  the  year,  ten  per  cent, 
must  be  put  upon  everything.     Hence  the  excellent 
maxim,  <'  Quick  sales  and  small  profits." 


ON  CREDIT.  893 

In  the  second  place  there  is  a  greater  inherent  un-  x. 
certainty  in  values  connected  with  credits  than  in 
those  connected  with  commodities,  or  than  in  those 
connected  with  personal  services.     We  have  already 
seen  that  value   has  its  sphere  of  operations  in  the  3^^  <^  Ji 
past,  in  the  present,  and  in  the  future.     There  is  ViH-^'pty^^'tX^^^^^ 
certainty  connected  with  what  has  been  done  in  ref-  ^^^-^-^ 
erence  to  value,  as  the   market  may  prove  to  have 
been   miscalculated,  and  the  commodities   to   have 
become  unsuitable  ;   there  is  uncertainty  connected 
with  what  is  now  being  done  in  reference  to  value, 
as  the  service  bargained  and  being  paid  for  may  be 
less  skillful  than  is  supposed;  but  from  the  nature 
of  the  case  there  is  greater  uncertainty  connected 
with  what  i%  to  be  done  in  reference  to  value,  be-  /t^c^^*^^ 
cause  in  the  first  two  cases  some  of  the  conditions^--'     - 
are  already  fixed,  while  in  the  last  all  of  them  are  at  ''^' 
least  open  to  hazard.     There  is  sufiicient  certainty ^^ 
in  all  three  to  justify,  and  probably  to  reward  opera- 
tions in  reference  to  value,  but  credits  are  naturally 
more  sensitive  in  the  law  of  their  value  than  either 
commodities  or  services. 

In  the  third  place,  and  largely  in  consequence  of  ^ 
what  has  just  been  expressed,  credit-exchanges  ^xedAjHU-j^ -^ 
more   likely  than   others    to   be    unduly   multiplied '^7^*^'^'^'^ 
and  to  fail  of  ultimate  realization  in  full.     No  more.'''*^*"*^ 
bales  of  cotton  can  be  actually  bought  than  are  ac-  "^ 

tually  produced,  and  no  more  men  can  be  hired  than 
are  willing  to  work ;  but  there  may  easily  be,  and 
often  are,  more  transactions  on  the  strength  of  a 
prospective  cotton  crop  than  the  crop  itself  can  pos- 
sibly realize ;  and  hence  credits,  whose  sphere  is  the 
future,  though  legitimate  and  potent,  lie  in  a  field 
that  adjoins  the  field  of  gambling.     Gambling  occu- 


894  ELEMENTS  OF  POLITICAL  ECONOMY. 

pies  the  field  of  chance.  Credits  occupy  the  field  of 
^      .f^.^'^?-•    probabilities.     Is  speculation  proper?    That  depends 

>Uf'-  '  on  the  meaning  of  the  word  "  speculation."  If  "to 
speculate"  means  to  buy  anything  with  an  expecta- 
tion based  on  rational  probabilities  of  being  able^  to 
sell  it  again  under  different  conditions  at  a  higher 
price,  speculation  is  proper  and  beneficial  to  the 
public  —  values  of  things  thus  bought  and  sold  nei- 
ther fall  so  low  nor  rise  so  high  as  they  otherwise 
would  do,  which  is  a  public  gain.  But  if  to  "spec- 
ulate" means  to  buy  and  sell  on  chances  merely,  it 

/  is  gambling,  and  what  one  gambler  makes  another 

Joses.  Under  a  sound  money,  healthful  public  opin- 
ion, and  good  law,  gambling  never  can  become 
formidable;  and  it  is  very  plain,  that  the  limits  and 
conditions  of  legitimate  credit  are  the  limits  and 
conditions  of  rational  probability. 

^'  In  the  fourth  place,  the  principal  disadvantage  of 

credit  is  seen  in  its  action  on  prices  through  in- 
..  creased  demand,  and  in  its  consequent  tendency  to 
produce  commercial  crises.  A  man's  whole  pur- 
chasing-power is  made  up  of  three  things:  first,  the 
property  in  his  possession  ;  secondly,  the  value  that 
J  is  owed  to  him;  thirdly,  his  credit.  He  can  buy 
value  with  these  three  things;  and  his  power  to 
buy  is  exactly  measured  by  the  sum  of  these  three 
"'* '^^^7  things.  But  while  the  first  two  are  limited  and  as- 
certainable, the  third,  credit,  is  in  a  certain  sense 
unlimited.  Being  based  upon  confidence,  which  is 
itself  a  variable  quantity,  a  man's  credit  at  one  time 
may  be  vastly  greater  than  at  another,  compared 
with  his  real  property ;  and  if  he  have  the  reputation 
of  doing  a  safe  and  regular  business,  and  is  favored 
by  circumstances,  he   will  find    himself  sometimes 


ON  CREDIT.  395 

able  to  buy  on  credit  to  an  extent  out  of  all  proper 
proportion  to  his  capital.  Instances  are  given  of 
dealers,  who,  in  times  of  speculation,  have  effected 
purchases  to  an  extent  seventy  or  even  one  hundred 
times  greater  than  their  capital.  And  on  the  other 
hand,  in  tinies  of  panic,  men  of  known  character 
and  of  financial  solidity  find  it  impossible  to  borrow 
a  dollar. 

The  commercial  panic  of  September,  1873,  afforded 
a  fresh  illustration  on  a  great  scale  of  the  principles 
just  mentioned,  and  of  the  other  principles  soon  to  ^■^'''■^^^^  '^  '"^J 
be  mentioned.  That  crisis  will  long  be  memorable 
for  the  prominence  of  the  houses  carried  down  by 
it;  for  the  proof  it  furnishes  that  an  immense  vol- 
ume of  paper  money  made  legal  tender  rather  invites 
than  prevents  a  crisis ;  for  the  illustration  it  gives 
that  the  instincts  of  men  are  sometimes  better  than 
their  logic;  and  for  its  unanswerable  demonstration 
of  the  tendency  of  credit-enterprises,  when  stimulated 
by  credit-money,  to  outrun  the  limits  of  prudence. 

Now  money  acts  upon  prices  only  by  being  offered  i'U*^'^  f 
in  exchange  for  commodities  ;  but  we  have  seen  thsdAi^^^ir^ 
commodities  maybe  purchased  by  credit  as  well  as^i^jS**^/ 
by  money ;  when,  therefore,  credit  is  offered  and  re- 
ceived for  commodities,  it  has  the  same  influence 
upon  prices,  as  when  money  is  offered  and  received 
for  them.     The  form  which  the  credit  assumes  to 
effect  the  purchase  is  a  matter  of  indifference,  whether 
bank-notes,  checks,  bills  of  exchange,  or  book-credits, 
what  acts  upon  prices  is  the  credit,  in  whatever  shape 
given,  or  whether  it  gives  rise  to  transferable  paper 
or  not. 

It  follows  from  this,  that  whenever  there  is  an  ex-  %^et  a  a 


396  ELEMENTS  OF  POLITICAL  ECONOMY. 

tension  of  credit  for  the  purpose  of  purchasing,  there 
will  be  a  corresponding  rise  of  prices.  He  who  em- 
ploys both  his  cash  and  his  credit  in  purchasing, 
creates  a  demand  for  the  article  to  the  full  amount 
of  his  money  and  credit  taken  together,  and  raises 
the  price  proportionally  to  both. 

There  might  be  a  simultaneous  rise  of  price  in 
several   commodities,   and    a  considerable   spirit  of 
speculation  manifested  in  these,  if  there  were  no  such 
thing  as  credit  and  all  business  were  done  by  ready 
money ;   but  there  could  not  be  a  general  rise  of 
prices  as  to  all  commodities;  for,  while  men  spent 
more  money  on  the  few  commodities,  and  they  rose 
l^ei-^fiff^*  in  price,  they  would  have  less  money  to  spend  on 
l^vj^^  other  commodities,  and  these  would    not  rise,  but 
*  rather  fall.    It  ie  only  when  credit  can  be  used  freely, 

/*  and  increased  purchases  can  go  on  in  all  departments 

at  once,  that  there  can  be  a  rise  of  prices  as  to  all 
commodities,  and  a  universal  spirit  of  speculation. 
At  such   times,  and  while  prices   are  still  rising, 
'U    uZ^X  ™^"  seem  to  be  making  great  gains;  those  that  sell 
'         .  while  the  fever  is  on  do  make  great  gains ;  and  they 
^^V"  *'not  only  use  their  credit  freely,  but  they  really  have 
more  credit  to  use,  from  the  very  fact  they  seem  to 
be   prosperous.      Everybody  wishes   to   extend   his 
operations  to  the  utmost  limit,  in  order  to  realize  the 
greatest  possible  gains.     Everybody  wishes  to  use 
not  only  all  his  money,  but  all  his  credit.     Every- 
body desires  accommodation,  and  accordingly  every- 
body gives  accommodation.     All  forms  of  indebted- 
ness are   greatly  increased.     Promissory-notes,  bills 
of  exchange,  book-credits,  are  indefinitely  multiplied 
in  all  directions. 


ON   CREDIT.  397 

It  begins  now  to  be  perceived  in  certain  quarters, 
that  the  thing  has  been  overdone  ;  speculative  pur- 
chases cease;  banks  become  more  particular  what 
paper  they  discount;  operators  consequently  find  it 
more  difficult  to  sell  their  debts  in  order  to  meet 
their  own  obligations ;  they  fall  back  necessarily 
upon  the  sale  of  their  commodities;  when  holders 
of  commodities  are  anxious  to  sell,  prices  begin  to 
fall ;  under  falling  prices  it  becomes  still  more  diffi- 
cult to  sell  debts,  and  even  to  sell  commodities,  be- 
cause few  people  wish  to  buy  when  a  market  is 
falling;  a  panic  often  sets  in,  more  irrational  if  pos- 
sible than  the  previous  over-confidence ;  their  in- 
flated wealth  in  credits  and  commodities  collapses 
in  the  hands  of  the  holders ;  but  men  must  realize 
something  from  their  property,  and  sell  it  therefore 
frequently  at  great  sacrifices;  but  the  amounts  of 
money  thus  realized,  and  all  the  loans  that  can  be 
extorted  in  the  crippled  state  of  credit,  are  inade- 
quate to  meet  the  maturing  debts  contracted  when 
confidence  was  high;  men  fail,  and  must  fail;  they 
besiege  the  banks  with  which  they  deal,  sometimes  /wv^e^ 
piteously  and  sometimes  bitterly,  for  accommoda- j-ccw—?' 
tion ;  but  the  banks  cannot  help  them,  or  think  they 
cannot ;  the  failure  of  some  causes  the  failure  of 
others,  who  hold  the  debts  of  the  first ;  and  so  wide- 
spread commercial  disaster  comes  in.  Such  crises  ('c^^w^kX.  } 
swept  over  this  country  in  1837,  1857,  and  1873, 
and  will  doubtless  recur  in  the  time  to  come.  They 
always  arise  from  disordered  credits,  and  though  not 
necessarily  connected  with  credit-money,  are  more 
likely  to  come  in  connection  with  that.  The  more 
strong  and  conservative  the  banks   maintain   their 


898  ELEMENTS  OF  POLITICAL  ECONOMY. 

ordinary  condition,  the  more   powerfully  can   they 
operate  to  prevent  or  abate  a  panic.     They  ought 
Ui^.i  a,...;  // ,  {''^^^vays  to  be  on  the  shore  and  never  in  the  stream. 
They  ought  to  be  able  to  offer  credit  on  approved 
securities  on   all  occasions  whatever ;  for  it  is  not 
money  so  much  that  is  needed  to  allay  a  panic,  nor 
even  credit  actually  given,  as  it  is  a  knowledge  that 
abundant  credit  can  and  will  be  given.     As  a  panic 
becomes  imminent,  banks  ought  to  be  able  to  extend 
f^  (^c<*wu.their  discounts  freely ;  and  the  permission  to  do  this, 
contrary  to  the  Bank  Act  of  1844,  given  by  the  gov- 
ernment to  the  Bank  of  England,  has  on  three  sev- 
eral occasions  acted  like  a  charm  to  still  the  rag- 
ings  of  a  commercial  storm.     Without  this  reserved 
power  centered  somewhere  to   give    credit,  and   to 
some  extent  even  after  its  prompt  exercise,  distress, 
more  or  less  extensive,  is  the  invariable  consequent 
of  the  series  of  events    called  a  commercial  crisis. 
That  series  is  constituted  somewhat  in  this  manner : 
first,  business  a  little  brisk ;  second,  confidence  and 
credit  enlarging;  third,  a  spirit  of  speculation;  fourth, 
a  vast  increase  of  all  forms  of  debt ;  fifth,  the  revul- 
sion, or  what  may  be  called  the  cascade  of  discredit; 
sixth,  stagnation  and  distress. 
L^MafKfv^'^^  '     A  national  debt  is  a  mortgage  upon  the  national 
^\  property  and  income.     It  is  sometimes  considered  as 

\^^J\S^aji^.'^^  blessing,  but  is  more  generally  and  truthfully  re- 
i  garded  as  a  burden.  It  is  not  denied  that  incidental 
»A»  '1t#^i*.w  advantages  may  spring  up  in  connection  with  it. 
^ /vu^v^  in,H».The  bonds,  which  are  the  evidences  of  the  debt,  open 
^  a  convenient  form  of  investment  for  presently  inact- 
cyt^^'  ^^®  capital  and  for  trust-funds  of  all  kinds.  There 
.CU^.Ut.^^  ^^"  ^®  "o  doubt,  I  think,  that  certain  classes  of  per- 


ON  CREDIT.  899 

sons  holding  these  national  obligations  are  won  to  a 
stronger  loyalty  and  become  firmer  friends  to  stabil- 
ity in  government ;  but  this  consideration  applies 
mainly  to  new  governments,  and  to  those  tempo- 
rarily endangered.  Both  England  and  the  United 
States  now  make  a  portion  of  their  public  debt  the 
basis  of  a  national  system  of  banking ;  but  it  is  very 
questionable  whether  this  can  be  mentioned  among 
the  incidental  benefits  of  the  debt.  Again,  "  a  mod- 
erate debt  adds  to  the  credit  of  a  nation,  and  its  abil- 
ity to  raise  money  in  an  emergency,  for  bankers  and 
capitalists  are  more  ready  to  take  such  securities  as 
they  are  in  the  habit  of  dealing  in."  ^ 

The  burdens  of  a  national  debt  are  very  apparent.  i^»-iA>  * '^'-m^ 
During  the  fiscal  year  closing  June  30,  1867,  the 
United  States  paid  out  in  interest  $143,781,592; 
and  between  the  1st  of  March,  1869,  and  the  1st 
of  August,  1873,  it  paid  towards  the  principal  of 
the  debt  $378,015,065.  These  vast  sums  came  out 
of  the  industry  and  income  of  individuals.  They 
came  through  taxation  of  individual  proprietors  of 
value ;  and  taxation  to  any  such  degree  as  this  is  a 
great  disturbance  to  industry,  and  gives  rise  to  an 
army  of  officials  who  consume  a  considerable  per- 
centage of  all  they  collect.  The  collection  of  the 
internal  revenue  for  the  fiscal  year  1867  cost  $7,712,- 
089.  Moreover,  the  various  expedients  of  taxation, 
which  are  always  practically  unequal  in  their  opera- 
tion, give  rise  to  irritation  and  political  agitation,  and 
even  sometimes  to  threats  of  repudiation,  especially 
when  the  occasion  has  gone  by  under  which  the  debt 
was  contracted,  and  a  generation  is  called  upon  to 

1  Communication  from  Sidney  Homer. 


400  ELEMENTS   OF   POLITICAL  ECONOMY. 

liquidate  a  debt  which  it  had  no  agency  in  creating. 
And  here  the  vexed  question  arises,  how  far  one 
generation  has  a  right  to  throw  upon  succeeding 
ones  the  burdens  of  a  national  debt  ?  I  answer,  that 
it  has  a  very  limited  right  indeed.  The  opposite 
doctrine  tacitly  implies  that  succeeding  generations 
will  have  no  occasion  for  extraordinary  expenses 
of  their  own,  and  therefore  may  rightfully  be  made 
to  contribute  to  the  extraordinary  expenses  of  this 
generation.  But  it  is  pure  assumption  to  take  for 
granted  that  the  next  generations  will  not  have,  of 
some  kind  or  other,  as  much  occasion  for  an  extraor- 
dinary effort  in  the  way  of  defence  or  of  improve- 
ment as  the  present  generation  has  had.  It  is  an 
illusion  to  estimate  what  has  now  to  be  done  as  of 
much  more  importance  than  w^hat  will  have  to  be 
done.  Therefore  to  throw  our  burden  forward  on 
another  generation  that  may  have  its  own  peculiar 
effort  to  make,  just  as  great  and  just  as  imperatively 
called  for,  is  an  unwarrantable  procedure.  The  view 
that  has  prevailed  in  practice,  that  a  great  war-debt 
for  example,  might  be  cast  with  facility  upon  pos* 
terity,  has  given  rise  to  needless  and  expensive  wars ; 
and  they  have  been  called  upon  to  pay  who  perceive 
the  utter  inutility  of  the  expenditure.  Thus  bitter- 
ness has  been  added  to  burden.  Besides,  the  men 
to  fight  the  battles,  and  the  capital  by  means  of 
which  to  feed,  clothe,  and  furnish  them  the  muni- 
tions of  war,  must  come  from  that  generation ;  and 
there  is  always  great  injustice  in  the  manipulations 
of  a  debt  ostensibly  incurred  to  obtain  this  capital, 
and  the  debt  itself  is  usually  in  large  part  rather  a 
memorial  of  the  war  than  the  means  by  which  its 


ON  CREDIT.  401 

expenses  were  actually  defrayed.     The  present  gen- 
eration of  American  citizens  was  called  on  to  do  an 
important  thing  in  suppressing  a  civil  war,  and  in  ...   (  S.. 
eradicating  a  social  institution  that  was  thoroughly  .■■.., 
bad;  the  expense  of  doing  this  was  many  fold  en-^-^*^^^ 
hanced  by  timid  counsels  in  the  field,  by  class  legis- 
lation in  Congress,  and  by  wretched  financiering  in 
the  Cabinet ;  but  the  debt,  vast  as  it  is,  and  unnec- 
essarily incurred  as   a  portion  of  it  was,  can  all  be 
paid  off,  must  all  be  paid  off,  by  the  generation  that 
incurred  it. 

How  can  this  desirable  result  be  best  reached  ?  U-,^v-u 
First  of  all  ought  the  United  States  legal-tender 
notes  to  be  called  in  and  cancelled.  They  are  a  por- 
tion of  the  unfunded  debt,  and  no  interest  accrues 
upon  them,  but  they  have  been  mischievous  and  \JL  7 
wasteful  in  their  effects  upon  industry  and  business.  ' 
Their  introduction  would  not  have  been  so  harmful, 
if,  contemporaneously  with  it.  Congress  had  forbid- 
den the  further  circulation  of  State  bank  bills.  These 
latter  were  largely  increased  along  with  large  issues 
of  the  national  notes.  The  currency  became  thor- 
oughly debauched.  The  measure  of  value  became 
as  variable  as  the  drift  of  the  winds.  Prices  became 
universally  and  abnormally  high.  Business  became 
feverish,  and  speculation  rife.  When,  after  a  long 
interval,  the  State  bank  bills  were  retired  under  a 
heavy  tax,  the  national  bank  bills  were  ready  to  take 
their  place,  and  these,  together  with  the  legal-tender 
notes  and  fractional  money,  now  swell  the  volume 
of  the  currency  to  nearly  eight  hundred  millions 
($776,000,000)  of  paper  money,  every  dollar  of  it 
practically  irredeemable,  and  every  dollar  of  it  de- 

26 


402  ELEMENTS   OF  POLITICAL  ECOMOMY. 

predated  (January  26,  1875)  twelve  per  centum. 
The  country  is  suffering  in  every  one  of  its  leading 
interests,  domestic  and  foreign,  from  the  influence  of 
Pi;^Z-.<<v.  this  inferior  money.  Trade  is  languishing;  and  the 
poor  especially  are  experiencing  the  truth  of  the  oft- 
quoted  remark  of  Mr.  Webster,  that  the  most  suc- 
cessful expedient  ever  devised  to  cheat  the  laboring 
classes  of  mankind  is  irredeemable  paper  money. 
Let  then,  the  national  legal-tender  notes  be  steadily 
withdrawn.  They  have  cheated  creditors  and  re- 
lieved debtors  of  their  just  obligations.  They  have 
made  it  impossible  for  other  forms  of  value-money 
to  come  into  circulation.  Their  presence  in  the  cur- 
rency depreciates  the  value  of  the  national  bank 
bills,  and  puts  off  the  day  of  specie  payments.  Let 
their  career  of  mischief  be  concluded. 

In  respect  to  the  funded  debt,  we  are  paying  the 
interest  promptly,  and  slowly  also  reducing  the  prin- 
cipal. Some  of  the  six  per  cent,  bonds  have  been  re- 
funded in  five  per  cents,  and  thus  the  burden  of  inter- 
na Ax/,'iUv^^^  f  est  has  been  lessened  ;  but,  after  all,  the  vital  ques- 
tion now  is,  not,  How  shall  we  pay  off  or  refund  the 
bonds?  but.  How  shall  we  pay  off  the  greenbacks? 
The  bonds  are  not  due  yet  for  many  years,  but  the 
legal  tenders  have  already  been  due  many  years,  and 
the  government  still  dishonors  its  own  promises  to 
pay.  Greenbacks  are  promises  to  pay  gold  dollars, 
and  have  no  other  possible  meaning,  and  government 
is  every  day  culpable  while  it  does  not  take  efficient 
measures  to  redeem  these  promises.  Once  in  posi- 
tion to  do  this,  the  question  late  agitating  the  coun- 
try about  paying  off  a  part  of  the  bonds  in  greenbacks 
answers  itself.     How  can  a  promise  to  pay  be  the 


ON   CREDIT.  403 

same  thing  as  the  pay  itself?  And  how  can  a  nation 
pretend  to  fulfill  one  set  of  promises  by  compelling  its 
holders  to  accept  another  set  of  promises?  The  only 
proper  basis  of  a  promise  is  the  free  trust  of  the  re- 
ceiver in  the  good  faith  of  the  promisor.  To  compel 
men  to  accept  a  promise  is  a  monstrous  incongruity. 
To  make  the  greenbacks  a  legal  tender  was  bad 
enough  ;  to  pay  off  the  bonds  with  them  would  be 
enough  worse.  No!  The  greenbacks  must  first  be 
paid  in  gold  to  every  man  who  demands  gold  on  them ; 
this  is  absolutely  necessary  to  national  good  faith; 
and  then  the  bonds,  if  the  principal  be  paid  at  all, 
which  is  not  absolutely  necessary  to  national  good 
faith,  since  the  terminable  bonds  may  be  changed 
into  Consols  with  the  consent  of  the  holders,  must 
be  paid  in  gold  to  the  last  farthing. 

The  price  of  the  bonds,  since  they  bear  gold  inter-  p^^  i^^i^x^ 
est,  has  always  been   higher  than  the  price  of  the        ^^ 
greenbacks,  in  gold.     Still,  the  bonds  have  not  been, c^--**.^.U-^-^^'**^ 
till  very  recently,  at  par.     The  average  cost  in  gold 
of  all  government  purchases  of  six  per  cents  between 
May,  1869,  and  March  15,  1871,  was  exactly  $92.18 
for  each  $100  bond.^     All  the  different  issues  of  six 
and  five  per  cents  are  now  considerably  above  par  in 
gold,  varying  from  115^  to  119^,  with  gold  at  112|. 
The  government  itself  realized  from  the  original  sale 
of  most  of  these  bonds  scarcely  three  fourths  in  gold 
of  their  face  value.     On  the  whole,  the  value  of  the 
evidences  of  the  public  debt  is  appreciating. 

The  debt  itself  is  now  about  $2,150,000,000.    The 
English  debt  is  somewhat  less  than  $4,000,000,000,  0,,.,^..^, 
much  of  it  in  the  form  of  Consols,  whose  peculiarity 

1  HunVs  Merchants'  Year-Booh^  1871. 


404  ELEMENTS  OF  POLITICAL  ECONOMY. 

is,  that  they  never  fall  due,  so  as  to  be  a  claim  for 
the  principal  against  the  government;  but  are,  after 
a  day  fixed,  always  redeemable  at  the  will  of  govern- 
ment at  par.  The  ordinary  price  of  Consols,  which 
bear  three  per  cent,  interest,  is  about  94.  The  ad- 
vantages, to  a  government,  of  a  debt  always  redeem- 
able, but  never  payable,  are  obvious  at  first  sight. 
All  our  funded  debt  issued  before  1865  is  made  pay- 
able on  a  day  certain.  The  so-called  Consols  of 
1865,  1867,  and  1868,  are  payable  not  more  than 
forty  years  from  date ;  while  the  new  bonds  of  1870 
are  Consols  proper,  redeemable,  the  five  per  cents 
after  ten,  the  four  and  a  half  per  cents  after  fifteen, 
and  the  four  per  cents  after  thirty  years.  That  they 
may  be  paid  in  gold  will  require  an  economical 
administration  of  government;  an  avoidance  of 
intervention  in  the  affairs  of  our  neighbors,  and  of 
entangling  alliances  with  foreigners  ;  a  free  commer- 
cial system,  under  which  duties  shall  be  adjusted 
only  for  the  most  productive  revenue;  and  a  con- 
stant and  onerous  home  taxation. 


ON  FOBEIGN   TEADE.  405 


CHAPTER  XIIL 

ON   FOREIGN   TRADE. 

The  principles  which  determine  the  questions  of 
foreign  trade  have  been  already  unfolded  in  these 
pages.  It  is  only  because  their  application  to  the 
wider  field  of  international  exchanges  has  been  con- 
tested by  some  persons,  who  have  conceded  their 
validity  within  the  boundaries  of  the  individual  na- 
tions, that  it  is  now  needful  to  bestow  upon  the  sub- 
ject a  separate  treatment,  to  demonstrate  that  the 
laws  of  exchange  are  universal  and  not  partial,  that 
the  accident  of  a  different  nationality  has  nothing  to^"^^^^^  ^^'V 
do  with  the  motives  or  the  gains  of  the  two  parties  ^"^'^ 
to  an  exchange,  and  also  to  attempt  to  answer  with  ' 

thoroughness  and  candor  the  objections  that  have 
been  raised  against  the  freedom  of  international  ex-  . 
changes.  Here,  as  everywhere  else  within  the  science 
of  political  economy,  the  safe  appeal  lies  to  the  com- 
mon sense  of  men.  The  scientific  mind  sees  the  ab- 
surdity at  once  of  attempting  to  apply  one  set  of  prin- 
ciples to  domestic  exchanges  and  an  opposite  set  to 
international  exchanges,  since  a  science  is  of  neces- 
sity general,  and  its  principles,  if  sound,  must  apply 
to  every  possible  case  of  the  whole  class ;  and  the 
common  mind  as  well  can  be  made  to  see  with  en- 
tire clearness  that  artificial  obstacles  put  in  the  way 
of  the  freedom  of  exchanges  invariably  involve  both 


406  ELEMENTS   OF  POLITICAL  ECONOMY. 

injustice  and  loss.  It  is  only  necessary  to  take  the 
simplest  cases  first,  display  familiarly  the  principles 
applicable  to  them,  and  then  with  the  clew  well  in 
hand,  to  pass  on  through  the  more  intricate  portions 
of  the  subject.  A  writer,  whose  simple  purpose  is 
to  reach  the  truth,  who  has  no  personal  interest  in 
either  defending  or  overthrowing  a  dogma,  will  not 
confuse  the  understanding  of  his  readers,  and  his 
own,  by  leaping  at  once  into  the  thick  complications 
of  this  large  subject.  Here  is  a  good  test  of  men 
and  of  methods.  The  confusions  prevalent  upon 
the  matter  of  foreign  trade  are  in  a  measure  the  re- 
sult of  this  false  method  pursued  in  discussing  it, — 
a  method  which,  however  favorable  it  may  seem  to 
the  apparent  establishment  of  certain  maxims,  can 
never  be  made  useful  in  the  investigation  of  truth. 
It  may  be  considered  as  a  point  already  well  settled 
by  experience,  that  no  man's  sagacity  is  sufficient  to 
guide  himself  or  others  to  any  sound  conclusions  on 
this  field,  who  takes  his  stand  at  the  outset  amid  the 
whirl  of  interlocking  phenomena,  and  then  endeavors 
to  work  himself  out  through  the  entangling  meshes 
which  surround  him  at  every  step.  Happily,  there  is 
no  need  of  any  such  procedure.  Man  is  man,  motive 
is  motive,  and  exchange  is  exchange ;  and  the  ap- 
parent chaos  of  commerce  can  be  resolved  through 
these  alone  into  harmony  and  order. 

In  our  fourth  chapter  it  was  put,  I  believe,  beyond 
TUt....  ^^^  reach  of  controversy  or  cavil,  that  the  only  reason 
why  men  ever  exchange  services  at  all,  is  on  the 
ground  of  a  relative  superiority  at  different  points^ 
This  relative  superiority  at  different  points  was 
shown  to  depend  in  individuals    partly  on  natural 


ON  FOREIGN   TRADE.  407 

gifts,  partly  on  concentration  of  mind,  or  muscle,  or 
both,  on  a  single  class  of  efforts,  and  partly  on  the 
use  and  familiarity  in  the  use  of  the  gratuitous  helps 
of  Nature  aiding  that  class  of  efforts.  The  tailor 
makes  the  blacksmith's  coat,  and  the  blacksmith  1^  ^>^  ^^ 
shoes  the  tailor's  horse,  for  no  other  reason  in  the  ■-^^-'^^lo^U  -i 
world,  except  that  each  has  a  relative  advantage  of  ^'^  f5^-^*-r^^ 
the  other  in  his  own  work,  and  therefore  there  is  a 
mutual  gain  in  their  exchanging  works.  To  pretend 
that  there  would  be  any  exchange  between  them,  in 
case  the  blacksmith  could  make  coats  as  well  as  the 
tailor,  and  the  tailor  shoe  horses  as  well  as  the  black- 
smith, would  be  to  assert  that  man  acts  without  a 
motive,  and  that  exchanges  take  place  without  a 
gain.  It  was  also  shown  in  the  same  connection, 
that  the  greater  the  difference  of  relative  advantage,  ^^'"^  '^^^  ^ 
the  greater  the  gain  of  an  exchange,  because  each/*^'^ '*' 
purchases  the  service  of  the  other  at  the  rate  of  his  ''  '/  *  -  ; 
own  highest  efficiency.  To  recur  to  the  same  ex- 
ample, while  the  efficiency  of  the  tailor  and  the 
blacksmith  each  in  his  own  trade  remained  at  6,  the 
efficiency  of  each  in  the  trade  of  the  other  being  at 
5,  there  was  only  a  gain  of  2  to  be  divided  between 
them ;  but  when  by  concentration  and  application 
the  efficiency  of  each  in  his  own  trade  rose  to  15,  his 
efficiency  in  the  other  remaining  at  5,  there  was  a 
gain  of  20  to  be  divided  between  them.  When  the 
relative  superiority  of  each  over  the  other  in  his  own 
trade  was  low,  the  gain,  though  sufficient  to  justify 
the  exchange,  was  small ;  but  when  the  difference  of 
relative  advantage  increased,  just  in  that  ratio  did  the 
exchange  become  more  profitable  to  both.  The  obvi- 
ous inference  from  this,  then  drawn,  and  now  re- 


^  f;/^'/, 


408  ELEMENTS  OF  POLITICAL  ECONOMY. 

peated,  is,  that  every  person  who  exchanges  with 
others  i«  directly  interested  in  the  highest  efficiency 
and  success  of  their  efforts  as  well  as  his  own.     The 
diversity  of  relative  advantage    at  different   points 
'^j*/t^'*-*~^exhibited  by  different  nations,  and  consequently  the 
'  '"''    gains  of  international  exchange,  were  expressly  re- 
served at  that  point  to  a  later  stage  of  our  inquiry 
'  ^^*^^i     That  stage  is  now  reached. 

'^'^'-^  The  various  countries  of  the  earth  have  received 

from  the  hands  of  God  a  diversity  of  original  gifts, 
%^ JLt^^Sh  tr..  in  climate,  soil,  natural  productions,  position,  and 
'   '  opportunity.      This  diversity  exists    for  a  good  de- 

sign, and  can  never  be  substantially  reduced  by  man, 
even  if  there  were,  as  there  is  not,  any  good  reason 
for  desiring  to  reduce  it.  Besides  original  diversity 
in  these  respects,  there  has  been  developed  in  the 
history  of  the  inhabitants  of  these  countries,  a  diver- 
sity of  tastes,  aptitudes,  habits,  strength,  intelligence, 
and  skill  to  avail  themselves  of  the  forces  of  Nature 
around  them.  These  differences  are  somewhat  less 
inherent  and  more  flexible  than  the  others,  but  they 
exist,  and  always  have  existed,  and  in  a  greater  or 
less  degree  always  will  exist ;  and  it  is  on  these  diver- 
sities, original,  traditional,  and  acquired,  that  inter- 
national commerce  depends ;  it  never  would  have 
come  into  existence  without  them,  and  it  would 
cease  instantly  and  completely  were  they  to  fade 
out.  Men  do  not  engage  in  foreign  trade  for  fun ; 
^    ,  they  engage  in  it  for  the  sake  of  the  mutual  gain 

n^^4.v  -^     •   derivable  to  both  parties;  they  desist  from  it  so  soon 
^^.wu^-^J-         as  that  mutual   gain  disappears;   and  there  is   no 
mutual  gain  in  any  series  of  exchanges,  unless  each 
party  has  a  superior  power  in  producing  that  which 


ON  FOREIGN  TRADE.  409 

is  rendered,  compared  with  his  power  in  producing 
that  which  is  received.      We  will  suppose  a  trade 
between  England  and  France  in  cottons  and  silks, 
England    sending   cottons   to    France,   and    France 
sending  silks  in  return.     When-  and  how  long  will  ^^^uaJ^oI^^^ 
this  be  a  profitable  trade  ?     Then,  when  efforts  be-  p^  e*^^>*v  < 
stowed  in  France  upon  silks   will  procure,  through  ^^a>t^  '^-V^c 
exchange  with  England,  more  of  cottons   than  the  iv..«A.*^«Q  S 
same  amount  of  efforts  bestowed  in  France  upon 
cottons  will  produce  of  cottons  directly ;  and  then, 
when  effopts  bestowed  upon  cottons  in  England  will 
procure  more  of  silks,  through  exchange  with  France, 
than  the  same  amount  of  efforts  bestowed  in  Eng- 
land upon  silks  will  produce  of  silks  directly.     So 
long  as  there  is  a  difference  of  relative  efficiency  in 
the  production  of  the  two  commodities  in  the  two 
countries,  so  long,  setting  cost  of  carriage  aside,  may 
there  be  a  profitable  exchange  of  the  two.     To  make 
such  an  exchange  profitable  to  both  parties,  it  is  not 
at  all  needful  that  the  cottons  exchanged  for  the  silks 
shall  have  cost  the  English  as  many  days'  labor  as  %ri-  <  «^ 
the  silks  may  have  cost  the  French  ;  or  that  the  silks  Tei^  «>  ^^ 
shall  cost  the  French  as  much  as  the  cottons  cost  the  €c^U~. 
English  ;  it  is  not  a  question  of  the  absolute  cost  of 
either  commodity  to  the  parties  producing  it ;  but  a 
question   of  the  relative   cost   of  that  produced  in 
either  country  compared  with   what  would  be  the 
cost  of  the  other  commodity  were  it  to  be  produced 
in  that  country.     The  question  for  the  Frenchman^..^^.tuL,;/'^^^ 
is,  Can    I   get  more   cottons   by   working   on    silks 
for  a  month,  and  then  trading  with  England,  than  I 
can  get  by  a  month's  work  on  cottons  at  home  ?    And 
the  question  for  the  Englishman  is.  Can  I  get  more 


410  ELEMENTS  OF  POLITICAL  ECONOMY-. 

silks  by  making  cottons,  and  then  trading  with 
France,  than  I  can  ge-t  by  trying  to  make  silks  at 
home?  As  this  point  is  fundamental,  and  deter- 
mines the  whole  matter  of  foreign  trade,  it  shall  be 
illustrated  arithmetically.  Suppose  that  cottons 
costing  $100  in  England  exchange  for  silks  costing 
$80  in  France  :  is  that  a  losing  trade  for  England  ? 
Not  necessarily.  Is  it  a  remunerative  trade  for 
France?  Not  necessarily.  It  depends  simply  upon 
this:  whether  $100  expended  in  England  in  the 
manufacture  of  silks  will  produce  as  many  and  as 
good  silks  as  can  be  obtained  for  $100  by  exchange 
with  France  ?  If  it  will,  depend  on  it,  that  $100 
will  never  go  to  France  to  buy  silks.  If  it  will  not, 
and  silks  are  in  demand  in  England,  then,  clearly, 
the  trade  is  advantageous  to  the  Englishman.  If 
the  cottons  costing  $100  in  England,  and  obtained  in* 
exchange  for  silks  which  cost  but  $80  in  France,  can 
there  and  then  be  made  for  $75,  France  makes  a 
losing  trade  (but  only  by  supposition),  though  she 
gets  what  cost  $100  for  what  cost  but  $80.  My 
readers  will  perceive,  that  it  is  not  the  absolute  cost 
of  commodities  to  the  countries  producing  them  that 
determines  their  value  in  foreign  trade,  but  that  cost 
relatively  to  what  would  be  the  cost  of  the  return 
commodities  were  they  to  be  grown  or  manufactured 
there.  A  demand  in  each  country  for  the  product 
of  the  other  is  of  course  presupposed  in  the  illustra- 
tion. 

If  this  general  representation  be  just,  and  I  think 
every  thoughtful  person  will  concede  it,  then  it  fol- 
lows, that,  setting  aside  a  greater  cost  of  carriage, 
foreign  trade  presents  no  elements   peculiar  to  itself, 


ON  FOREIGN   TRADE.  ^llCM-c/iOy-^^ 

but  only  the  same  elements  which   domestic  trade  ,     . 
presents ;  and  consequently,  that  the  same  laws  and  j^^      "^a 
limitations  applicable  to  domestic  exchanges  are  ap-     '^ 
plicable  also  to  foreign  exchanges.    As  in  every  other 
exchange,  so  here,  there  are  Iwo  efforts,  represented  ^2</y-o  jtffo^ 
In  this  case  by  the  cost  of  the  respective  commodi-  j_,^7^  Jbu 
ties,  —  the  cottons  $100,  and  the  silks  $80 ;  there  are 
two  desires,  —  the  desire  of  the  Englishman  for  silks, 
and  of  the   Frenchman  for  cottons  ;   there  are  two 
estimations,  —  the  estimation  of  the  Frenchman  of 
the  effort  in  silks  required  to  obtain  the  cottons  by 
exchange  compared  with  the  effort  required  to  obtain 
them  directly,  and  the  Englishman's  estimation  of 
his  effort  in  cottons  necessary  to  procure  the  silks  in 
exchange,  compared  with  what  would  be  the  effort 
needed  to  manufacture  the  silks  in  England;  and, 
finally,  as  always,  two  satisfactions. 

Now  let  us  further  suppose  that  while  the  cottons 
cost  $100  in  England,  it  would  cost  $120  to  manu-^^y/>>^^  ^  ^. 
facture  there  as  good  silks  as  can  be  made  in  France  g^^^  ^<^  <^ 
for  $80;  and  that  while  the  silks  cost  but  $80  in  ^..  \  <?_ 
France,  it  would  cost  $96  to  make  cottons  there  as  ^._^,  ,^,^ 
good  as  the  English  can  make  for  $100.     On  this  ^ 

supposition,  France  can  make  both  silks  and  cottons  ^^^  ^>^—  f^-^- 
at  a  cheaper  absolute  cost  than  England  can.     But'/ 
does. that  destroy  the  motive  and  the  gain  of  an  ex-  ^^' 

change  between  the  countries  in  these  two  articles  ? 
Let  us  see.  By  exchange  with  England,  France 
gets  for  $80  in  silks,  cottons  which  would  otherwise 
cost  her  $96,  —  a  handsome  gain  of  20  per  cent. ; 
England  gets  for  cottons  costing  her  $100  silks 
which  would  otherwise  have  cost  her  $120, —  another 
handsome  gain  of  20  per  cent.     Though  France  can 


412  ELEMENTS  OF  POLITICAL  ECONOMY. 

make  each  commodity  for  less  absolute  money  than 
England  can  make  either,  there  is  a  diversity  of  rela- 
tive advantage,  and  therefore  there  might  be  in  this 
case,  as  there  is  actually  in  many  such  cases,  a  prof- 
itable trade.  The  efficiency  of  France  in  making 
Bilks,  relatively  to  that  of  England  in  making  silks, 
is  in  the  ratio  of  80  to  120, —  a  difference  of  50  per 
cent.;  while  the  efficiency  of  France  in  making 
cottons,  relatively  to  that  of  England  in  making  the 
same,  is  only  in  the  ratio  of  96  to  100, —  a  difference 
of  4^  per  cent.  In  the  majority  of  cases,  doubtless, 
foreign  trade  takes  place  in  articles,  in  the  production 
of  one  of  which  each  of  the  respective  countries  has 
an  absolute  advantage  over  the  other,  but  an  every 
way  advantageous  trade  may  be  carried  on  in  articles 
in  the  production  of  both  of  which  one  nation  shall 
have  an  absolute  superiority  over  the  other,  provided 
only  that  this  superiority  be  relatively  diverse  in  the 
two  articles,  as  has  just  been  shown.  This  is  an 
effectual  answer,  as  I  take  it,  to  the  clamor  of  some, 
who  object  to  importing  articles  which  might  be 
made  at  home  for  the  same  sum  of  money  as  for- 
eigners expend  in  making  them ;  admitted,  that  they 
might  be  so  made ;  does  it  follow  that  the  country 
importing  them  would  get  them  as  cheaply  by 
making  them  itself?  By  no  means  does  that  follow. 
By  the  supposition,  the  importing  country  has  an 
efficiency  in  making  those  articles  equal  to  that  of 
the  foreign  country  ;  but  it  may  also  have  a  superi- 
ority absolute  or  relative  over  that  country  in  the 
production  of  other  articles  which  that  country  wants 
in  exchange  ;  if  so,  the  exchange  complained  of  may 
go  on  to  the  manifest  profit  of  both  parties.     Our 


ON  FOREIGN  TRADE.  413 

general  supposition  a  little  changed  will  put  this  case 
in  its  true  light :  France  can  make  cottons  for  $100 
which  it  costs  England  also  $100  to  make ;  shall  she 
give  up  her  trade  with  England  in  silks  and  cottons, 
because  she  can  make  cottons  as  cheap  as  England 
can  ?  She  had  better  not.  Let  the  exchange  go  on  ; 
for  $80  in  silks  she  gets  cottons  which  would  other- 
wise cost  her  $100, —  a  gain  of  25  per  cent. ;  Eng- 
land gets  silks  for  $100  which  would  otherwise  cost 
her  $120,  —  a  gain  of  20  per  cent,  as  before.  Let  no 
nation  be  in  haste  then  to  drop  a  trade,  because  it 
thinks  it  can  make  the  article  received  in  exchange 
as  cheaply  as  the  other  nation  makes  it,  so  long  as  it 
has  an  advantage  over  the  other,  absolute  or  relative, 
in  making  the  article  rendered  in  exchange ;  and  when 
tha^  advantage  ceases,  the  trade  will  drop  of  itself. 

What  will  be  the  extreme  limits  of  the  value  of 
cottons  and  silks  in  a  trade  between  England  and 
France  under  the  conditions  supposed  ?  And  when 
will  a  third  nation  be  able  to  undersell  either  in,^^-ii(^jy^ 
the  ports  of  the  other?  The  extreme  value  of; 
French  silks  in  English  cottons,  will  be  80  and  96 ; 
they  cannot  fall  below  80,  because  they  cost  the  >;J 
French  that  to  produce  them ;  they  cannot  rise 
above  96,  because  at  that  rate  the  French  can  make 
cottons,  and  there  would  be  no  gain  in  exchanging. 
Nations,  no  more  than  individuals,  will  get  them- 
selves served  at  a  greater  effort  than  that  at  which 
they  can  serve  themselves.  If  a  given  effort  does 
not  realize  more  through  exchange  than  it  would 
directly,  then  the  exchange  ceases  of  necessity,  as 
fire  goes  out  for  lack  of  fuel.  The  extreme  limits  of 
the  value  of  English  cottons  in  French  silks,  will  be 


JOa^ 


»vXtX   <C 


414  ELEMENTS   OF  POLITICAL  ECONOMY. 

100  and  120,  for  reasons  precisely  similar.  There- 
fore the  highest  profits  possible  to  both  nations, 
under  the  conditions  of  the  trade,  are  20  per  cent, 
each.  France  would  be  glad  to  take  the  cottons  at 
a  return  of  80,  at  which  rate  her  gain  would  be  20 
per  cent. ;  and  she  cannot  under  any  circumstances 
offer  quite  96,  at  which  rate  her  gain  would  disap- 
pear No  third  nation,  therefore,  in  a  trade  of  silks 
for  cottons,  can  expel  the  French  from  the  English 
J^'waWv^  ports,  until  it  is  prepared  to  offer  nearly  96,  or 
^^aX-IU -f^ovtt  fnore,  in  silks  in  return  for  English  cottons;  that 
v^.^'  -(k,....^?./^.  is  to  say,  until  its  efficiency  in  making  silks  rel- 
'  atively  to  that  of  England  in  making  them,  presents 
a  greater  difference  than  the  difference  of  efficiency 
between  France  and  England  in  making  silks,  that 
is,  greater  than  fifty  per  cent.  A  greater  difference 
of  relative  advantage,  and  nothing  else,  will  enable 
a  third  nation  to  undersell  France  in  such  a  trade. 
England  would  be  glad  to  take  the  silks  at  a  return 
of  100,  at  which  rate  her  gain  is  20  per  cent. ;  and 
she  cannot  possibly  off'er  quite  120,  because  at  that 
rate  her  gain  would  wholly  vanish.  She  could  be 
undersold  in  the  French  ports,  under  similar  condi- 
tions, and  not  otherwise,  as  the  French  in  her  own 
ports,  as  just  now  indicated.  We  have  seen  that 
the  diversity  of  relative  advantage  in  the  production 
of  the  two  articles  in  the  two  countries  is  in  the 
ratio  of  50  to  4^ ;  France  has  an  absolute  advantage 
in  the  production  of  both  commodities;  the  trade 
proceeds  simply  on  the  basis  of  this  relative  diver- 
sity ;  and  no  nation  can  take  away  the  silks  of 
France  from  England,  or  the  cottons  of  England 
from  the  French,  either  with  other  cottons  and  silks, 


ON  FOEEIGN   TRADE.  415 

or  any  other  commodity,  except  on  the  basis  of  a  di- 
versity, absolate  or  relative,  greater  than  this  Here 
is  the  whole  doctrine  of  one  nation's  underselling  an- 
other in  the  ports  of  a  third.  It  can  do  so  under  condi- 
tions of  greater  relative  efficiency,  and  not  otherwise. 

So  far  we  have  considered  only  their  relative  cost 
of  production  as  deternriining  the  value  of  articles  in 
foreign  trade.  But  we  know  that  the  element  of 
desires  also  helps  to  determine  i^ll  value.  We  come 
now  to  illustrate  what  is  sometimes  and  properly 
called  "  the  Equation  of  International  Demand."         'li'^-^A-  . 

If  the  demand  for  French  silks  in  England  just 
answers  to  the  demand  for  English  cottons  in  France, 
so  that  the  silks  offered  by  France  just  pay  for  the 
cottons  offered  by  England,  then,  cost  of  carriage 
aside,  the  gains  of  the  trade  will  be  equally  divided 
between  the  two  nations,  each  will  realize  20  per 
cent,  profit,  because  neither  will  have  any  motive  to 
lower  the  value  of  its  commodity  below  its  highest 
value ;  France,  from  its  point  of  view,  will  offer  80  in 
silks  and  get  96  in  cottons;  England,  from  her  point, 
will  offer  100  in  cottons  and  get  120  in  silks.  Demand 
and  supply  are  equalized  at  a  point  of  value  most 
favorable  to  both  parties,  and  really  determined  by 
the  relative  cost  of  production.  This  case  of  equali-  P^^^^"^  ^-^^ 
zation,  though  possible,  is  likely  rarely  to  occur  in'^^^^l^*^ 
practice.  On  any  terms  of  exchange  first  offered, 
there  is  likely  to  be  a  strongeTd^mand  in  one  country 
for  the  product  of  the  other  than  in  this  country  for 
the  product  of  that.  This  will  lead  to  a  change  of 
value,  and  a  new  division  of  profits.  The  product 
for  which  the  demand  is  less  will  find  its  market 
sluggish,  and  in  order  to  tempt  further  and  brisker 


416         'elements  op  political  economy. 

exchanges,  will  be  compelled  to  offer  more  favorable 
conditions.     He  who  enters  a  market  in  quest  of 
what  is  more  in  demand  with  a  service  in  return 
U^  AwU  ^  which  is  less   in    demand,  will  have  to  lower  his 
f!jZ^^^  OJ*  no*  ^^^^'     '^'^^  equalization  of  supply  and 

^  demand  will  only  be  reached  in  this  case,  by  quicken- 

ing the  demand    for  the  commodity    now   less   in 
demand,  through  an  offer  of  better  terms  in  trade. 
Thus,  if  the  demand  for  French  silks  in  the  English 
rur  '^  ">>t^         ports  be  slack,  in  comparison  with  the  demand  for 
Z^eU  hi>-J  u.  English  cottons  in  France,  at  the  rate  of  exchange 
c  e^j^^^^&vsi  established — 80  for  96,  the  French  merchant  has 
^^   no  resource,  if  he  wishes  to  continue  the  trade,  but  to 
offer  more  silks  for  the  same  amount  of  cottons,  say, 
85  for  96.      If  this  reduction  prove  sufficient  to  can- 
cel the  account  in  cottons  with  the  account  in  silks, 
then  the  trade  will  go  on  on  this  new  basis  for  a 
while,  the  equalization  of  supply   and  demand  has 
been  reached  through  a  new  valuation  of  the  com- 
modities, and  there  is  now  a  different  division  of  the 
profits.     France  gains  less  than  13  per  cent,  by  her 
]uv  '^t'^^^  trade  with  England,  while  England  gains  27 -f- per 
Jfjj  >..  fuO-cent.  in  her  trade  with   France.     Under  these  new 
terms  of  exchange,  it  is  possible  that  silks  may  again 
become  heavy  in  reference  to  cottons,  and  a  new  de- 
cline take  place  in  their  relative  value.     If  the  French 
are  obliged  to  offer  90  for  96,  in  order  to  obtain  the 
cottons  they  want,  their  profits  will  sink  to  6  -f-  per 
cent.,  while  the  English   profits  will  rise  to  38  -\-  per 
cent.     If,  in  any  contingency,  the  French  were  com- 
pelled to  offer  in  the  neighborhood  of  96  in  silks  for 
96  in  cottons,  the  trade  would  cease  of  course,  just 
as  every  other  transaction  ceases  when  the  motive 


ON  FOREIGN  TRADE.  417 

for  it  ceases.    Of  course,  the  cottons  are  just  as  likely 
to  become  dull  in  reference  to  silks,  as  the  silks  to\,  a^^Ok^^i 
cottons,  and  in  this  case   England  must  lower  her  :^  ^^^^^^  ^i^ 
demands,  and  thus  surrender  a  larger  share  of  the 
profits    to    France.      By    the   play  of    supply   and 
demand,  within  the  outermost  limits  drawn  by  the 
relative  cost  of  production,  is  the  value  of  articles 
determined  in  foreign  trade ;  and  no  degree  of  com- 
plication in  the  variety  of  articles,  or  in  circuitous  ex- 
changes,   affects,  for   substance,  these   fundamental 
principles.     For  example,  if,  instead  of  one  article, 
as  cottons,  England  sends  two  articles,  or  ten,  to     . 
France  in  payment  for  silks,  she  will  send  in  prefer-  U^**^ct^  <v?^ 
ence  that  article  in  which  her  labor  is  relatively  most  'hUct  &-^ 
efficient,  so  long  as  the  French  demand  will  receive  >^^  "kP^- 
it ;  then,  when  obliged  to  lower  on  that  down  to  the  /.^  ^6-^^^  '^ 
point  at  which  her  next  most  available  article  stands,^  ^^  ^^^  ^' 
she  will  send   that   in  quantities   regulated   by  the*'*^'*^^  ' 
demand  for  it;  and  so  on  to  the  end.     No  matter 
whether   the  articles  be   one  or  many;    no   matter 
whether  the  trade  be  a  direct,  or  an  indirect,  trade ;  /    . 

the  profits  in  all  cases  will  depend,  first  upon  the  ^^^ 
ratio  of  the  cost  of  what  is  rendered  to  what  would -"^""l*^  /^ 
otherwise  be  the  cost  of  that  received ;  and  secondly, 
upon  the  relative  intensity  of  the  two  demands.  The 
greater  the  relative  efficiency  of  any  nation  in  pro- 
ducing an  article  of  export,  and  the  stronger  the 
demand  for  that  article  in  foreign  ports,  the  more 
profitable  does  the  trade  become  to  that  nafjon. 
The  precious  metals,  whether  produced  at  home,  or 
obtained  from  other  nations  by  another  series  of  ex- 
changes, stand  here  in  the  same  relations  as  other 
commodities,  and  are  frequently  the  most  profitable 

27 


418  ELEMENTS   OF  POLITICAL  ECONOMY. 

articles  that  a  nation  can  export.  The  terms  of  in- 
ternational exchanges,  then,  between  any  two  na- 
tions, are  so  adjusted,  as  to  equalize  the  demand  for 
their  respective  products,  and  cancel  the  debts  mutu- 
ally incurred. 

It  follows  from  all  this  by  a  necessary  inference, 
that  what  a  nation  purchases  by  its  exports,  it  pur- 
chases by  its  most  efficient  labor,  and  consequently 
at  the  cheapest  possible  rate  to  itself.  Only  those 
things,  for  the  procuring  of  which  a  nation  possesses 
decided  advantages  relatively  to  other  nations,  and 
relatively  to  its  own  advantages  in  producing  directly 
what  is  received  in  return,  are  ever  exported ;  and 
hence,  the  return  cargoes,  no  matter  what  they  have 
cost  their  original  producers,  are  purchased  by  this 
nation  as  cheaply  as  if  they  had  been  produced  by  its 
own  most  advantageous  labor.  This  is  a  wholly  im- 
pregnable position,  and  the  advocates  of  restricting 
foreign  trade  are  challenged  to  try  their  hand  a  little 
at  its  defences. 

We  see  also,  at  this  point,  what  to  think  of  those 

«.  <icJtL*v.  people  who  deem  it  needful  that  each  nation  should 
a^-^d,  be  able  to  "  compete  "  with  other  nations  in  every- 

(..  ,.,;f  thing.  Why  are  not  these  people  consistent  enough 
to  apply  their  favorite  doctrine  of  "  competing "  to 
domestic  exchanges  also,  and  demand  that  the  cler- 

.^^■...t  u  EY^^^  shall  have  facilities  for  "competing"  with  the 

!.^f/v«^c  !^^®^'  *^^  *^ilo^  with  the  blacksmith,  the  farmer 
with  the  manufacturer,  the  publisher  with  the  author? 
Will  these  people  never  learn  that  all  exchanges,  do- 
mestic as  well  as  foreign,  depend  on  relative  supe- 
riority at  different  points,  and  that  a  nation  which 
should  try  to  make  its  success  in  production  equal  at 


ON  FOREIGN  TRADE.  419 

all  points,  would  be  as  foolish  as  an  artisan  trying  to 
learn  and  practise  all  trades  at  once  ?     Suppose  the  ^iij     y-* 
nation  to  succeed,  what  then?     It  would  supply  its    //T         , 
wants  at  a  certain  average  efficiency  of  effort;  whereas,  /^  [^\7 
by  a  thorough  development  of  all  its  own  peculiar ^^^'^^'^^^'^'^ 
resources,  it  could  command  by  exchange  the  prod- <fjr^^^^^ 
ucts  of  the  world  at  a  cost  not  exceeding  that  of  ita 
own  most  productive  and  efficient  exertion.     In  one 
word,  whatever  justifies  individuals  in  selecting  di- 
verse paths  of  production  according  to  their  capaci- 
ties and  opportunity,  the  same  justifies  the  nations 
in  fully  drawing  out  their  own  best  capabilities  under 
the  conditions  in  which  God  has  placed  them,  and 
then,  exchanging  what  costs   them   little   for  what 
would  otherwise  cost  them  much,  in  enjoying  all  that 
the  world  offers  at  the  least  expenditure  of  irksome 
efibrt.     Such  action  promotes  the  common  good  of 
ail  the  nations,  and  makes  the  best  of  all  accessible 
to  all,  and  arms  each  with  the  power  of  all ;  w^hile 
the  opposite  action,  by  lessening  the  diversities  of 
relative  advantage,  so  far  forth  incapacitates  all  for 
exchanges  which  are  at  once  profitable  and  stimu- 
lating. 

Closely  connected  with  the  one  just  cited,  is  an- 
other   narrow  and    superficial   notion,    happily   less  <^^-^'*^^^ 
prevalent  now  than  formerly,  namely,  that  new  im-'^     ^^*' 
provements  in  machinery,  or  other  enhanced  facili-*^^''''^'"'*^ 
ties  of  production,  realized  in  any  nation,  are  a  dis-  "^  ^ 
advantage  to  other  nations  in  their  trade  with  that 
nation.    Let  us  examine  this  point.    Suppose  France, 
by  new  methods  of  silk  culture,  to  become  able  to 
make  the  silk  which  before  cost  $80  for  $50,  cottons 
in  France,  and  silk  and  cottons  in  England,  remain- 


420  ELEMENTS  OF   POLITICAL  ECONOMY 

ing  in  natural  cost  as  before,  does  France  alone  gain 
the  entire  advantage  of  the  increased  cheapness  of 
silk?  We  will  see.  The  production  of  silk  in 
France  is  greatly  quickened  by  the  cheaper-  meth- 
ods, more  is  produced,  more  is  carried  to  England  to 
buy  cottons  with,  but  at  the  old  rate  of  80  for  96 
the  English  will  not  take  any  more  silks,  and  the 
French,  who  can  now  abundantly  afford  it,  since 
their  nominal  80  is  really  50,  will  offer  more  silks 
for  96  in  cottons,  in  order  to  tempt  a  brisker  and 
broader  sale.  They  offer,  say,  96  in  silks  for  96 
in  cottons,  and  if  that  reduction  of  value  of  silks  in 
cottons  be  enough  for  the  equalization  of  the  re- 
spective demands,  the  trade  will  go  on  on  that  basis, 
at  least  for  a  time ;  and  as  there  is  now  a  larger  dif- 
ference of  relative  advantage  than  before,  there  will 
be,  as  always  in  such  cases,  larger  profits  to  be 
divided  between  the  two  parties.  The  96  now 
offered  in  silks  to  the  English  is  really  only  60  in 
cost  to  the  French,  so  that  the  French  gain  in  the 
trade  is  largely  increased ;  they  now  get  for  what 
costs  them  60  what  would  otherwise  cost  them  96, 
a  clear  gain  of  60  per  cent.  Before  the  new  meth- 
ods of  silk  culture  were  introduced  they  gained 
only  20  per  cent.  But  the  English  have  also  gained 
largely  by  the  ingenuity  and  diligence  of  their  neigh- 
bors. Before,  they  gained  only  20  per  cent,  in  the 
trade  at  best;  now  they  get  for  what  costs  them 
$100  that  which  otherwise  would  cost  them  $144, 
a  clear  gain  of  44  per  cent.  Indeed,  it  might  easily 
happen,  through  the  changes  in  international  de- 
mand, that  even  a  larger  share  of  the  benefit  of 
the   French    improvements    should    accrue   to    the 


ON   FOREIGN  TRADE.  421 

English  than  to  the  French  themselves ;  the  share  of 
the  French  all  the  while  being  large,  and  much  lar- 
ger, than  if,  greedily  endeavoring  to  keep  all  the  ben- 
efit, they  refused  to  trade  at  all.      Thus  w^e  reach  /<A-xv  \^  t^ 
again,  from    another  outlook,  a  grand  doctrine  of  7,^  ^It-w^ 
exchange,  that  each  party  is  benefited  by  the  prog-^   /^ 
ress  and  prosperity  of  the  other.     The  only  way  iiv/P/^^ 
vvliieh  all  nations  can  share  in  the  benefits  of  thc^^^^-*"^ 
thrift  and  enterprise  of  each  other,  is  through  mutual 
international  exchanges  ;  and  when  each  nation  sees 
to  it  that  it  has  a  few  commodities  at  least  for  which 
there  is  a  strong  demand  among  foreigners,  and  in 
the  production  of  which  themselves  have  a  strong 
superiority,  it  may  rest  assured  that  it  buys  all  it 
buys  from  abroad,  gold  included,  at  the  cheapest  rate 
to  itself,  and  shares  a  part  of  the  prosperity  of  every 
nation  with  which  it  trades.  -^ 

It  is  now  time  to  look  at  the  cost  of  carriage,  thus  i 
far  allowed  to  sink  out  of  sight  for  the  sake  of  greater 
simplicity  of  view.  This  is  an  important  element  in 
international  exchanges,  and  one  which  must  not  be 
neglected,  although  Mr.  Carey  unduly  enlarges  upon 
it  with  a  view  to  prejudice  a  free  exchange.  Cer-  ^  c*"-^?  '^ 
tainly,  it  costs  something  to  carry  any  goods  abroad, 
and  to  bring  back  a  return,  and  we  may  be  assured 
that  if  such  return  goods  could  be  procured  as  cheaply 
without  incurring  such  expense,  the  expense  would 
never  be  incurred.  The  fact  that  all  expenses  con- 
nected with  carriage  are  gladly  borne  by  the  mer- 
chants who  carry  on  the  trade,  shows  that  the  gains 
of  the  trade  are  so  great  as  not  only  to  pay  freights 
and  insurance,  but  also  to  leave  a  good  margin  for 
profits.    Mr.  Carey  does  not  get  around  this  stubborn 


Ct'T~)~t  iC^ 


422  ELEMENTS   OF  POLITICAL  ECONOMY. 

fact.     What  use  is  it  to  pile  up  calculations  to  show 
that  the  expenses  incurred  in  carriage,  if  applied  to 
production  at  home,  would  secure  as  good  goods  and 
more  of  them  ?      If  they  would,  why  do  they  not  ? 
Have  not  men  common  sense  ?    Is  not  self  interest  a 
tolerably  strong  motive-power  ?     Is  it  needful  to  in- 
voke the  mighty  arm  of  law  to  compel  men  to  act  in 
accordance   with   their    pecuniary   interests  ?       Mr. 
Carey  would  restrict  foreign  trade,  because  it  costfl 
so  much  to  carry  it  on.    Is  that  wise,  in  case  the  gains 
after  all  largely  overbalance  the  cost  ?     If  they  did 
not  overbalance  it,  would  the  trade  go  forward  ?     If 
the  cost  be  large,  as  it  is,  that  is  a  good  reason  to 
desire  its  reduction,  if  possible;  to  labor  for  increased 
facilities  of  transportation,  for  cheaper  freights,  and 
better  rates  of  insurance ;  but  to  argue  for  forcibly 
stopping  a  trade  by  legal  enactment,  because  it  costs 
those  so  much  who  freely  undertake  to  carry  it  on, 
does  not  strike  me,  and,  I  believe,  will  not  strike  my 
readers,  as  a  sound  argument. 

Which  nation,  a  party  in  foreign  trade,  pays  the 
costs  of  carriage?  Or  does  each  pay  them  in  equal 
proportion  ?  The  aggregate  cost  of  transportation  to 
the  foreign  market  is  so  much  added  to  the  cost  of  pro- 
duction, and  is  a  deduction  of  so  much  from  what 
would  otherwise  be  the  whole  gain  of  the  exchange; 
but  It  IS  not  true  that  each  party  necessarily  pays  the 
whole  of  his  own  freights,  and  therefore,  that  the  party 
carrying  bulky  articles  is  at  a  disadvantage  compared 
with  the  other.  Hfe  may  or  may  not  be  at  a  disad- 
vantage.  That  will  depend  on  the  effect  of  the  new 
expense,  however  divided,  on  the  demand  in  the 
respective  countries.     Suppose,   that  in  the   outset 


ON  FOREIGN   TEADE.  423 

England  pays  the  whole  cost  of  carrying  cottons  to   ,, 
France,  and  France  the  whole  cost  of  sending  the  ?*'*^ 

silks  to  England;  but  as  cottons  are  many  times 
more  bulky  than  silks  proportionably  to  value,  a 
larger  bill  of  freights  would  fall  to  England ;  and 
cottons  would  therefore  fall  relatively  to  silks ;  but 
cottons  and  silks  both  have  risen  absolutely,  that  is, 
with  refe/'ence  to  a  given  effort,  or  with  reference 
to  a  money  standard.  Suppose  that  France,  in- 
stead of  80  for  96,  now  has  to  give  82  for  96,  and 
England,  instead  of  100  for  120  now  has  to  give 
105  for  120.  The  French  gain  in  the  trade  is  re- 
duced by  cost  of  carriage  from  20  per  cent,  to  nearly 
17,  and  the  English  gain  from  20  per  cent,  to  nearly 
14  ;  but  it  is  by  no  means  certain  that  the  trade 
would  go  on  on  these  terms ;  the  enhanced  price  of 
silks  might  well  deaden  the  demand  for  them  in 
England,  more  than  the  relatively  less  enhanced 
price  of  cottons  in  France  would  affect  the  demand 
for  them.  Silks  have  risen  in  England  5  per  cent., 
but  cottons  have  risen  in  France  only  2j-  per  cent. ; 
it  is  therefore  every  way  likely  that  thereafter  the 
demand  for  cottons  will  be  stronger  than  the  de- 
mand for  silks,  and  if  so,  the  French  will  have  to 
offer  better  terms,  or,  what  is  the  same  thing,  be 
obliged  to  pay  a  part  of  the  English  freights ;  so 
that  there  is  nothing  in  the  true  state  of  the  case, 
to  justify  the  conclusion  jumped  at  by  some  people  \//l^^  ^  t^ 
that  they  who  carry  heavy  goods  are  at  a  ^a^^^- ji^  ^m.,-*^-^ 
vantage  compared  with  those  who  carry  light  goods.  ^^  Jic^t*.^^ 
That  will  depend  on  the  equation  of  international  _^^^,_,^  jiC^ 
.  demand.  Nothing  in  the  nature  of  things  hinders,  M.,^  7 
that   each  party  shall  in  effect  pay  the  freights  ^^ /L^  ^tAj^yAj 


424  ELEMENTS   OF  POLITICAL  ECONOMY. 

the  other,  or  one  even  really  pay  the  freights  ot 
both. 
■f  These,  then,  are  the  essential  principles  of  foreign 
trade,  brought  out,  it  is  hoped,  as  clearly  and  con- 
secutively as  the  relative  and  complicated  nature 
of  the  transactions  will  allow ;  and  in  the  light  of 
•nese  principles  it  is  very  clear  that  foreign  trade  is 
just  as  legitimate  as  domestic  trade  ;  that  it  rests  on 
the  same  ultimate  principles  in  the  constitution  of 
man  and  in  the  providential  arrangements  of  Nature ; 
that  the  profit  of  it  is  mutual  to  both  parties,  or  it 
would  never  come  into  being,  or,  coming  into  being, 
would  cease  of  itself ;  that  to  prohibit  it,  or  restrict 
it,  otherwise  than  in  the  interest  of  morals,  health,  or 
revenue,  must  find  a  justification,  if  at  all,  outside  the 
pale  of  Political  Economy  ;  that  to  say  to  any  body 
of  men  who  wish  to  render  purely  commercial  ser- 
vices to  foreigners,  to  receive  back  similar  services  in 
return,  that  such  services  shall  neither  be  rendered 
nor  received,  is  not  only  to  destroy  a  certain  gain, 
but  also  to  interfere  with  a  natural  and  inalienable 
right. 

Unfortunately,  the  old  mercantile  system,  which 
h\cy.  i4^^c^?was  so  wise  as  to  believe  that  gold  and  silver  were 
the  only  objects  of  real  value,  taught  also,  in  coinci- 
dence with  its  fundamental  belief,  that  foreign  trade 
*  ought  to  be  so  regulated  and  restricted  as  to  bring 
in  the  largest  possible  quantity  of  the  precious  met- 
als ;  that  each  nation  ought  to  sell  much  and  buy 
little  in  order  to  grow  rich  ;  that  bounties  ought  to  be 
given  to  exporters  to  encourage  them  to  sell,  and 
prohibitions  laid  upon  importers  to  prevent  their  buy- 
ing;  and  that  the   introduction,  through  exchange 


ON  FOREIGN  TRADE.  425 

with  foreigners,  of  articles  which  might  be  produced 
at  home,  should  be  by  all  means  prevented  by  law, 
no  matter  what  advantages  for  producing  them  for- 
eigners might  have,  or  what  advantages  the  nation 
itself  might  have  in  producing  that  which  the  foreign- 
ers would  be  glad  to  take  in  exchange.     The  mer- 
cantile system  as  such,  is  long  ago  dead  and  buried, 
but  it  has  left  one  of  its  progeny  behind  it,  cf  no 
better  birth  than  its  parent,  which  has  not  yet  found 
its  predestined  death  and  burial.     This  is  the  doc-  p 
trine  that  goes  under  the  name  of  '*  Protection  to''' 
Domestic   Industry,"  a  designation,   however,  very    ff^^''— ^*1 
little   indicative  of  its  real  nature.     This  so-called  ^^^^^^ •  ^  ^ 
**  Protection  "  has  been  sought  through  a  system  of 
duties  or  taxes  laid  upon  the  introduction  of  certain6MMje -^  ^ 
goods  from  foreign  countries,  with  a  view  of  thereby  f^y^Jt^^f^ 
raising  the  price  of  the  corresponding  goods  of  do- 
mestic production.      This  doctrine,  clearly  an  out- 
growth of  the  mercantile  system,  is  now  something 
more  than  two  hundred  years  old,  and  is  everywhere     .    .      .7] 
in   its   decrepitude.     An    incurable  wound  was  in-^^^  75. 
flicted  on  it  by  the  publication  of  Adam   Smith's  lAytX^r*-*^ 
"Wealth  of  Nations"  in   1776;  the  centennial  of 
that  event  and  of  American  Independence  will  prob- 
ably witness  very  little  practical  vitality  in  it  any- 
where in  the  world ;  it  has  died  out  utterly  in  Great 
Britain,  where  it  once  had  a  vigorous  life ;  it  colors 
scarcely  at  all  the  revenue  systems  of  the   German 
and  Austrian  empires;  it  still  lingers  feebly  in  Rus- 
sia; it  has  had  a  recent  temporary  revivification  in 
France;  and  though  steadily  and  rapidly  declining 
in  the  United  States,  it  has  been  strong  enough  here 
to  control  the  national  legislation  of  the  past  decade. 


426  ELEMENTS  OF  POLITICAL  ECONOMY. 

I  It  has  been  reinforced  of  late  years  by  the  writings 

of  Mr..  Carey  and  .Mr.  Greeley;  and  the  prevalence 
of  the  doctrine  in  the  popular  mind,  particularly  in 
New  England,  is  still  such  that  I  deem  it  useful  to 
examine  it  at  some  length,  to  confute  the  arguments 
urged  in  its  behalf,  to  urge  some  decisive  objections 
against  it,  and  to  answer  the  objections  raised  to  the 
opposite  doctrine  of  a  free  commerce. 

As  BPotection  is  supposed  to  be  secured  through 
t  ,         .    •  ^  ,an  instrument  called  a  tariff,  let  us  first  see  precisely 
^"^  what  a  tariff  is.     The  origin  of  the  word  will  throw 
light  upon  the  thing.     The  southernmost  point  of 
the  Peninsula  of  Spain,  which  juts  down  into  the 
narrowest  part  of  the  Straits  of  Gibraltar,  holds  a 
town    named    Tarifa.      Here,    during    the    Moorish 
domination,  a  castle  was  built,  and  all  vessels  pass- 
ing through  the  Straits  were  stopped  and  compelled 
to  pay  duties  at  fixed  rates  :  whence  the  word  tariff 
in   English   and   other  languages.     It  will    be    per- 
ceived at  a  glance  that  a  tariff  is  only  another  name 
for  a  tax.     It  is  the  special  form  of  tax  which  gov- 
ernments   levy   on    goods    brought    in    from    other 
AoAvJt^Jv^^v   countries.     It  may  be  legitimately  imposed  for  the 
♦W^vJkc^  .Av.\   ^  s'^^k^  ^^  ^  revenue  to  support  government;  it  may 
be  a  species  of  robbery,  or  black-mail,  as  in  the  his- 
torical instance  just  cited ;  or  it  may  be  levied  for  the 
sake  of  Protection,  so  called ;  but  for  whatever  pur- 
pose imposed,  it  is  alw^ays  and  simply  a  tax  on  the 
;      ^      exchange  of  goods.     How  anybody  can  intelligently 
,  .  '-■',^»"' suppose  that  a  system  of  taxes  can  be  so  cunningly 
adjusted  as  to  become  a  positive  productive  agent,  a 
spur  to  the  progress  of  society,  they  must  explain 
who  suppose  so.     I  myself  once  supposed  so  ;  but  it 


ON  FOREIGN  TRADE.  427 

was  when  I  was  in  ignorance  of  the  real  nature  and 
operation  of  such  taxes.  A  careful  study  of  the 
principles  of  this  science,  with  a  noting  of  the  records 
of  experience  in  this  matter,  has  convinced  me,  as  it 
has  thousands  of  others,  that  Protective  duties,  so 
called,  are  nothing  in  the  world  but  burdensome  J. ^  .-  ' 
taxes  laid  upon  industry;  that  they  always  have  ; 
been,  and  always  will  be,  deeply  detrimental  to  the 

true  interests  of  society.     The  word  "  Protective,"  as  -.^     . ^ 

applied  to  a  tariff,  is  full  of  deception.     A  tariff  in  ?'^"^ 
its    very    nature   is  restrictive,    obstructive,   prohibi- 
tive. 

The  first  main  distinction  to  which  I  call  atten-  ^      ^ 

tion,  is  that  between  a  protective  jarifF  and  a  rev- 
enue   tariff.      Upon    this    point   a   great    confusion 
exists  in  the  common  mind.     A  revenue  tariff  is  a  i^AJr  io  a. 
schedule  of  taxes  levied  on  imported  goods  with  an ^"^^"-^    *Ti 
eye  to  equitable  taxation  only.     If  such  taxes  are  to 
be  productive,  they   must    not   interfere    essentially^^,^  £?^^<. 
with  the  bringing  in  of  the  goods,  that  is  to  say,  they 
must  be  levied  at  a  low  rate,  so  as  not  much  to  dis- 
courage importations,  or  encourage  smuggling  at  all. 
Also,  experience  has  shown  that  it  is  not  needful,  in 
order  to  derive  a  large  revenue,  to  lay  even  low  rates 
upon  all  goods  imported,  but  only  on  certain  classes 
of  them,  so  as  to  burden  at  as  few  points  as  possible 
the  ongoing  of  international  exchanges.     The  pros- 
perity induced  by    commercial   freedom    enables   a  . 
country  to  import  vast  quantities  of  the  articles  sub- 
jected to  the  tax,  so  that  large  revenues  come  from  ^^'i^^  "t^ 
low  rates    levied   at  few  points.     Also,  these   taxes  ^  ***^/  ^^ 
ought  to  be  laid  on  articles,  if  possible  wholly,  at    /Ua>w''! 
any  rate  mainly,  procured  from   abroad  and  which 


i^jJU » W' 


'  428  ELEMENTS   OF  POLITICAL  ECONOMY. 

are  not  produced  also  at  home;  otherwise,  the  in- 
cidence of  the  tax  on  the  portion  imported  will  raise 
^f.         B         the  price  also  of  the  portion  produced  at  home,  and 
Tr^  «iA^.    ^^  people  will  pay  more  in  consequence  of  the  tax, 
>^.U^4     than   the  government   gets  in   revenue.     A   proper 
J     iU  a     i    revenue  tariff,  then,  lays  low  duties  on  comparatively 
"J/*^^*"*^    few   articles,  which  are  wholly  or  mainly  procured 
"^  from  abroad.    The  most  advanced  nations  of  Europe 

^/W^^  n-t/iT-  jjQ^  \.^  their  tariff-taxes  in  accordance  with  these 
'^''*'***''^^  •      three  principles. 

But  the  purpose  of  a  protective  tariff  is  totally  dis- 
tinct from  this.     A  protective  tariff  is  a  schedule  of 
taxes  levied  on  imported  goods  with  a  design  to  raise 
'^^j  the  price   of  certain  home  commodities.     To  reach 

this  end,  the  duties  are  laid  by  preference  on  goods 
which  are  both  imported  and  also  produced  at  home, 
thus  violating  one  of  the  fundamental  principles  of 
>  *.*r  -^wrjL  a  revenue  tariff.     Also,  to  be  protective,  the  duties 
M*^  tjL  ^  U,    must  either   be  so  high   as  to  exclude  the  foreign 
UuJClxK'^"         goods  altogether,  and  thus  give  the  domestic  manu- 
facturer the  complete  monopoly  of  the  home  market, 
which  is  the  perfection  of  Protection,  or  at  least  high 
enough  to  raise  the  price  of  the  foreign  goods  to  the 
point  at  which  the  home  manufacturer  is  desirous  of 
selling  his  own.     These  high  duties,  certainly  for  a 
^^"^  ""A  '  time,  discourage  importations,  and  thus  violate  an- 
V^»^         other  of  the  fundamental  principles    of   a  revenue 
tariff.     But  the  effect  on  revenue  is   not  the  worst 
effect.     The  main  effect  designed,  and  that  actually 
follows,  is  to  raise  the  price  to  all  consumers,  in  order 
that  a  factitious  advantage  may   accrue  to  certain 
home   manufacturers.     When   most    successful,   the 
effect  is  to  transfer  money  from  the  pockets  of  the 


4>V^r«..^^ 


ON  FOREIGN  TRADE.  429 

many  to  the  pockets  of  a  few.     I  do  not  stop  at  this 
point  to  demonstrate   the   economical  folly  of  this,  ^ 
my  object  being  now  to  show  the  idea  that  always  ^<^^^^  f^ 
underlies  protective  duties.     Also,  since  if  one  home  Aax.*-*'  ^^ 
producer  receives  an  artificial  advantage  under  the  ^2ct^7i*i^ 
tariff,  many   others   may  lay  an    equal  claim  to  it, '^'^  ^^***' 
tariff-taxes  for  Protection  come  to  be  levied  upon  a 
great  many  articles,  thus  violating  the  third  funda- 
mental principle  of  a   revenue  tariff,  by  inferfering 
with  exchanges  at  many  points  instead  of  a  few. 

Now,  can  these  two  systems  of  revenue  and  pro-  ^    ^ 
tection,  which  are  so  distinct  and  apparently  incom-  ^^  '"^"^^     * 
patible,  be   combined  together  ?     Can   there    be   a^^'  '^  '^^" 
revenue  tariff  with  incidental  protection  ?     I  answer, ^^ 
No  ;  because  Protection  fully  carried  out  would  an-\jL  v^JU  ", 
nihilate  all  revenue  from  foreign  goods  the  like  of 
which   could   possibly   be   produced  at  home,  since 
such  goods  would   then   be   all   prohibited ;  and,  on 
the  other  hand,  a  system   looking  only  to  revenue, 
making  the  people  pay  only  what  the  government 
is  to  get,  would  have,  for  a  reason  already  given,  no   Ji    i^\ 
particle  of  Protection  in  it.     If  this  be  so,  is  there  "• 

any  reason  to  suppose  that  less  degrees  of  protec- 
tion  would    not   be   only  less    hostile   to   revenue? 
Is  it  not  of  necessity,  looking  at  the  nature  of  the 
two    systems,   that   the    point    at  which    protection 
begins  is   also   the   point  at  which   revenue  begins        _^    . 
to   diminish?     It   is  not  denied   that  a  tariff  with ^^^'^'^""^ 
protective   features  in    it   may    be   made    to    yield^^"*-^/ 
much  revenue  ;  but  can  it  do  this  without  making 
the  people  pay  much  more  than  the  revenue  ?     It  is 
the  interest  of  revenue  that  government  shall  get  all 
that  the  people  are  made  to  pay  in  consequence  of  a 


430  ELEMENTS  OF  POLITICAL  ECONOMY. 

tariff- tax.  It  is  the  interest  of  protection  that  the 
people  shall  pay  much  more  in  consequence  of  a 
tariff-tax  than  the  government  gets.  Revenue  is 
only  received  on  the  foreign  goods  that  come  in. 
.  I      Protection  is  only  secured  as  the  foreign  goods  are 

j^^,j.«v/^   kept  out;  or  are  so  raised  in  price  as  also  to  raise 
hvvx CH^>>tr>W  in   price  the  corresponding  domestic  goods ;  which 
'ji^  fA^«lW^  last  makes  the  people  pay  more,  while  the  Treasury 
^^vV»^,-^^       receives  less..    Therefore  the  conclusion  is  unavoid- 
able, that  a  revenue  tariff  with  incidental  protection 
is,  if  not   a  contradiction   in  terms,   an   attempted 
combination  of  things  incompatible  with  each  other. 
If  Protection  be  good,  it  is  good  in  and  of  itself;  if 
it  be  bad,  it  has  no  business  to  be  begging  to  lean 
on  something  so  respectable  as  revenue. 

The  fundamental  reason  why  low  duties  on  im- 
vw.;Vf^>xy-^€;'  ports  produce  a  larger  aggregate  revenue  than  high 
.  iw^^c  l>^w.  duties  is  found  in  the  condition  of  society,  which  is 
like  a  pyramid  standing  on  its  broadest  base,  each 
of  whose  horizontal  sections  is  more  extended  than 
the  one  above  it.  Those  persons  able  to  purchase 
an  article  at  five  dollars  are  more  than  twice  as  nu- 
merous as  those  able  to  purchase  it  at  ten  dollars ; 
and  those  able  to  buy  it  at  one  dollar  are  probably 
ten  times  as  many  as  those  who  would  buy  it  at  five 
dollars.  An  official  list  of  taxable  incomes  in  the- 
Tenth  District  of  Massachusetts  lies  before  me,  and 
selecting  one  town  at  random,  I  find  one  income 
over  $40,000,  three  over  $30,000,  seven  over  $20,000, 
nine  over  $10,000,  thirteen  over  $5,000,  twenty-nine 
over  2,000,  and  seventy-eight  over  $1,000.  A  lower 
duty,  therefore,  on  any  article  is  likely  to  bring  it 
within  the  reach  of  a  wider  circle  of  consumers  ;  and 


ON  FOREIGN   TRADE.  431 

for  many  to  pay  a  low  duty  is  better  for  the  revenue 

than  for  a  few  to  pay  a  high  duty.     Of  course  the 

exact  limitations  must  be  found  out  by  experience. 

Alexander  Hamilton  long  ago,  in  one  of  the  papers 

of  the   Federalist,  called  attention   to  the   fact  that 

high  duties  will  not  make  large  revenues,  any  more  -..t^^^^   ^^ 

than   a  large  multiplier  will  make  a  large  product,       q 

The  multiplicand  is  an  important  factor  in  both  cases.   ;    'j\-'  * 

A  subordinate  reason  why  low  duties  are  favorable  )^^ 

to  revenue  is,  that  they  destroy  smugglmg.  wL^iMLrt 

Free  Trade  is  the  opposite  of  Protection  so  called,  ^ 
and  not  of  Customs  duties  properly  levied  for  revenue.    '"'^  f^'-*-*^ 
All  taxes  are  paid  out  of  the  gains  of  exchanges  ;^-^y^^^^^^  v 
and  there  is  no   objection,  on   principle,  to  interna- ^^^^^^^ '^ 
tional   exchanges    paying   their  share   of  the   taxes. 
Provided  it  be   economical  for  the  government   to 
collect,  and  equitable  for  the   people  to  pay,   taxes 
in  this  form,  it  is  just  as  legitimate  to  tax  foreign 
as  domestic  exchanges.     The  considerations  that  go 
to  determine  the  best  methods  of  taxation  will  be 
given  fully  in  the  chapter  under  that  title ;  but  the 
question  between  Free  Trade  and  Protection  is  very 
distinct  from  the  question  between  Customs'  Duties  j^i^^^^ 
and  Internal  Taxation.     Some  free-traders  think  it^^^Jj^^^^^^i^ 
would  be  wise  to  abolish  custom-houses  altogether         '^  ' 
and  tax  domestic  exchanges  only  ;  other  free-traders 
see  no  objection  in  tariff-taxes  levied  at  low  rates  on 
a   few  articles   of    general   consumption  wholly   or 
mainly  procured   from    abroad;    but  that   point,  in 
whichever  way  decided,  has  little  or  nothing  to  do 
with  the  distinctive  question  of  Free  Trade.     The 
words  are  indeed  open  to  a  charge  of  ambiguity,  but 
the  animated  debates  of  a  century  have  sufficiently 


432  ELEMENTS   OF  POLITICAL  ECONOMY. 

settled  their  meaning.     Free  Trade  is  the  opposite 
YfL^  ^/H>^    of  Protection,   and   is   completely  realized   in   any 
country  whenever  every  tariff-tax  is  laid  solely  for 
.  aK  ^m    ^^^  g^j^g  ^£  ^jjg  revenue  to  be  derived  from  it.    From 
^   *  their  nature  and  purpose,  protective  tariff- taxes  pre- 

,  vent  revenue;    and,  therefore,  taxes  levied  with   a 

single  eye  to  revenue  leave  no  opening  for  protec- 
tion. When  used  in  its  legitimate  sense  the  word 
"  protection  "  is  an  honest  and  needful  word ;  when 
used  in  reference  to  tariff-taxes  it  is  full  of  deceit, 
and,  being  a  good  word,  is  made  to  cover  up  an  evil 
thing.  Protection  is  a  rise  of  price  on  domestic  goods 
caused  by  the  imposition  of  tariff-taxes  on  correspond- 
ing foreign  goods. 

Since  Political  Economy  is  the  science  of  ex- 
changes, and  since  protection  is  an  obstacle  thrown 
by  legislation  across  the  pathway  of  exchanges,  po- 
litical economists  generally  have  been  much  averse 
to  protection,  and  have  endeavored  to  vindicate  the 
%^  w«L— .  f*"^^^^"^^  of  exchanges.  Indeed,  it  is  difficult  to  see 
L  4Uwi-^-->  ^^^  there  can  be  any  science  of  exchanges,  if  any 
*  r — /  V"  sound  economical  reason  can  be  given  for  hindering 
exchanges.  If  there  be  exchanges  injurious  to 
morals,  health,  or  revenue,  they  may,  of  course,  be 
prohibited  on  those  grounds.  Objections,  neverthe- 
less, are  still  urged  against  the  freedom  of  exchanges, 
as  if  men  could  not  yet  be  trusted  to  buy  and  sell 
for  their  own  advantage.  I  shall  now  answer  the 
principal  of  these  objections.  Some  of  them  are 
popular,  and  will  be  subjected  to  a  popular  refuta- 
tion ;  while  such  as  profess  to  be  scientific  will  be 
met,  it  is  hoped,  by  a  scientific  method  at  least 
equal  to  their  own. 


ON  FOREIGN  TKADE.  433 

1.  One  of  the  most  common  of  these  objections  4>^  ^/(.t^,  ^ 
has  been,  that  Free  Trade  is  a  theory.  Men  say,  ,^^^^»: 
"It  is  all  very  well  in  theory,  but  it  will  not  work 
Well  in  practice.''  Can  there  be  a  good  theory  that 
works  ill  in  practice?  That  is  necessarily  a  bad 
theory  that  does  not  work  well  in  practice;  and  the 
only  way  to  tell  whether  a  theory  is  good  or  bad  is 
to  test  it  by  practice.  Everything  that  is  done  at 
all,  unless  by  mere  chance,  is  done  on  some  under- 
lying theory ;  and  it  is  certainly  better  that  things 
should  be  done  on  a  good  theory  than  on  a  bad  one. 
To  concede  the  theory  to  be  good  is  to  concede  the 
whole  matter,  since  a  theory  is  good  for  no  other 
reason  than  that  it  is  good  in  practice.  There  have 
been  so  many  unfounded  theories  broached  on  all 
subjects,  that  the  term  has  fallen  into  some  reproach, 
and  it  is  for  this  reason  that  the  charge  of  being  a 
theory  is  brought  against  Free  Trade,  but  there  is 
nothing  in  the  world  more  respectable  than  a  good 
theory  proved  by  solid  arguments  and  verified  by 
facts.  Newton's  theory  of  gravitation^  for  example, 
is  a  very  respectable  theory.  So,  and  for  the  same 
reasons,  is  the  theory  of  Free  Trade,  which  simply 
postulates,  that  two  parties  wishing  to  exchange  ser- ;,^^^^,^^  ^ 
vices  for  their  mutual  benefit  should  be  allowed  to 


do  so,  provided  no  other  men's  rights  are  infringed  '^, 
thereby.  Free  Trade  does  not  compel  anybody  to  "f"'*** 
trade,  it  merely  allows  those  to  trade  who  think  it 
for  their  advantage.  The  only  theory  in  the  prem- 
ises is,  that  men  are  their  own  best  judges  in  the 
matter  of  their  own  exchanges,  and  that  govern- 
ments have  not  the  right  and  still  less  the  wisdom 
to  restrict  this  advantageous  interchange 


E?^ 


28 


484  ELEMENTS   OF  POLITICAL  ECONOMY. 

Q  The  theory  of  Protection,  on  the  other  hand,  be- 

.«^</ii^' sides  being  complicated,  is  contrary  to  the  natural 
v^t<.*!  impulses  of  men,  denies  the  fundamental  fact  on 

which  Political  Economy  is  based,  namely,  that  ex- 
changes are  mutually  beneficial,  assumes  that  some- 
body else  rather  than  the  parties  concerned  are  best 
judges  of  their  advantage,  bears  so  obvious  an  as- 
pect of  greed  on  the  part  of  those  who  get  the   pro- 
tective duties   put   on,   and    has   invariably  caused 
euch  dissatisfaction  and  loss  in  every  country  that 
has  put  it  into  practice,  that  I  have  no  hesitation  in 
calling  Protection  a  very  bad  theory  with  nothing 
good  about  it.     The  burden  of  proof,  at  any  rate, 
\JUy^jL^        lies  upon  the  man  who  brings  in  a  theory  interrupt- 
L     >U-    «/?      ^^^  ^^^  P^^y  °^  natural  laws.     Let  him  bring  for- 
i,  U      ward  and  prove  his  theory  of  restriction.     Let  us 

^'^r  hear  the  arguments  and  see  the  grounds  that  justify 

the  prohibition  of  an  advantageous  trade.  If  the 
benefits  of  the  trade  were  not  considerable  and  re- 
ciprocal, it  would  not  exist ;  when,  then,  such  a 
trade  is  going  forward,  who  is  he  that  takes  upon 
him  to  curtail  and  prohibit  it?  Who  is  he  that 
thinks  himself  competent  to  manipulate  the  natural 
laws  of  trade  ? 

It  is  conceded  by  everybody  that  a  free  exchange 

of  commodities  within  the  same  country  is  highly 

.>-c^.v*w     beneficial :  what  makes  it  suddenly  cease  to  be  bene- 

i^^^^jb'     ficial  as  between  foreign  countries  ?     Does  the  mu- 

j^-  jV^  .tual  benefit  of  an  exchange  depend  upon  the  accident 

I  "  that  the  parties  to  it  are  citizens  or  subjects  of  the 

same  government?      The   south   end   of  Vermont 

trades  freely  and  advantageously  with  its  neighbors 

across  the  line  in  Massachusetts ;  is  there  any  good 


ON  FOREIGN   TRADE.  435 

reason  why  the  north  end  of  Vermont  should  not 
trade  just  as  fr^^ely  and  advantageously  with  its 
neighbors  across  the  line  in  Canada?  These  are 
questions  which  the  theory  of  protection,  in  my 
opinion,  cannot  satisfactorily  answer.  r 

(2.)   A   second    objection    has   been,  that  foreignj^  ^Ix^ 
g-oods  admitted  freely  tend  to  diminish  the  wages  of  ff^ 

our  own  laborers.  Let  us  see  if  this  is  so.  For- 
eign articles  are  certainly  wrought  by  foreign  labor  ; 
do  we,  then,  by  buying  them  employ  foreign  labor, 
to  the  prejudice  of  our  own  laborers?  We  are 
obliged  to  pay  for  everything  we  buy,  —  are  we 
not?  In  what  do  we  pay?  Clearly,  in  the  pro- 
ducts of  our  own  labor.  We  employ  our  own  hL-^^r^^^f"^ 
borers  to  produce  the  articles  which  we  exchange'^  /''^r^ 
for  foreign  articles.  We  pay  for  our  imports  by  our 
exports.  Our  exports  are  created  by  home  labor, 
and  the  only  possible  way  for  us  to  obtain  the 
results  of  foreign  toil,  is  to  offer  in  exchange  the 
results  of  domestic  toil.  A  commercial  nation,  there- 
fore, not  only  does  not,  but  it  cannot  employ  foreign 
labor.  The  more  it  buys  of  foreigners,  the  more 
home  labor  it  must  employ  to  create  the  articles 
with  which  it  pays  for  what  it  buys.  We  must 
remember  that  the  exports,  taking  the  years  together, 
must  and  do  balance  the  imports.  Free  Trade, 
therefore,  can  by  no  possibility  discourage  home 
labor,  or  diminish  the  wages  of  laborers ;  and,  as  a 
matter  of  fact,  labor  is  best  rewarded,  other  things 
being  equal,  in  the  freest  commercial  countries. 

I  deem  it  important  thoroughly  to  demolish  this 
objection,  for  it  has  been  considered  the  stronghold 
of  the  advocates  of  Protection.     I  admit  that  a  pro- 


436 


ELEMENTS   OF  POLITICAL  ECONOMY. 


(lOKv^^    " 


tective  tariff  may  stimulate  a  certain  branch  of  man- 
ufacture, may  concentrate  capital  in  it,  may  call 
laborers  into  it,  and  even  for  a  time  increase  the 
wages  of  those  laborers.  But  competition  will  very 
Bpeedily  reduce  wages  in  that  department  to  the 
average  level  in  other  departments,  and  unless  it 
can  be  shown  that  restriction  increases  the  general 
wages-fund  of  a  country,  —  that  fund  that  is  de- 
signed for  the  payment  of  labor,  —  it  is  in  vain  to 
claim  that  it  can  increase  the  general  wages  of  labor. 
Capital  and  laborers  may  indeed  be  withdrawn  from 
one  employment  to  another  by  artificial  stimulus, 
but  is  there  any  general  gain  in  that  ?  While  the 
one  is  stimulated,  is  not  the  other  depressed  ?  I 
have  seen  upon  the  ocean  the  wind  blow  up  a  wave, 
but  I  always  noticed  a  depression  behind  it.  The 
general  level  of  the  ocean  is  not  raised,  however 
high  the  waves  rise. 

The  tendency  of  Free  Trade  is  directly  the  reverse 
of  that  alleged  in  the  objection ;  because  the  varied 
objects  of  use  and  elegance  offered  to  our  desires  by 
international  commerce  stimulate  labor  to  create  that 
with  which  to  buy  them.  Just  so  far  as  tariff-taxes 
keep  foreign  products  out,  they  deprive  domestic 
products  of  their  best  market,  and  thus  discourage 
domestic  labor.  How  can  the  free  interchange  of 
commodities  lessen  the  demand  for  labor,  or  the  re- 
wards of  labor,  while  it  opens  the  whole  world  for 
the  sale  of  the  products  of  labor  ?  Is  not  a  world 
market  better  than  a  one  country  market  ?  Domes- 
tic products  are  never  sent  abroad  to  buy  foreign 
products  except  when  the  foreign  products  thus  pur- 
chased are  worth  more  at  home  than  the  domestic 


ON  FOREIGN  TRADE.  437 

products  are  which  purchased  them  ;  and  it  would 
be  an  odd  encouragement  of  domestic  labor  to  pro- 
hibit its  products  from  going  where  they  can  obtain 
the  most  in  return.  As  a  matter  of  sound  reason,  it 
may  be  said,  that  every  foreign  purchase  necessitates 
the  employment  of  domestic  labor  to  create  that/t'^'''***^'^ 
with  which  the  purchase  is  made,  thereby  enlarging *^^'^^'*^ 7^ 
the  demand  tor  laborers,  and  tending  to  increase 
their  wages;  w^hile  as  a  matter  of  actual  experience, '^^^s^'^ 
it  may  be  said,  that  a  general  rise  of  wages  never 
failed  to  accompany  the  adoption  of  a  free  commer- 
cial policy  by  a  nation  whose  trade  was  previously 
restricted.  Eiigljsh  wages  have  gone  up  on  the 
whole  average  more  than  one  quarter,  and  in  some 
departments  fully  one  half,  since  the  adoption  of 
Free  Trade  by  Great  Britain.  , 

(3.)   A  third    objection    against   Free    Trade   has  i'^^^'*^'^ 
been,  that  many  great  men  have   believed  in,  and    V 
inany  great  nations  have  acted  on,  the  doctrine  of 
Protection.     The  name  of  Daniel  Webster  has  been  w^xjj^ 


often  mentioned  in  this  connection.  To  estimate 
the  force  of  this  objection  rightly,  two  things  must 
be  remembered :  first,  that  the  doctrine  of  protec- 
tion is  an  inheritance  from  more  than  two  centuries 
ago,  an  outgrowth  from  a  confessedly  false  dogma, 
which,  being  then  universally  received  and  acted  on 
by  the  nations,  has  given  this,  one  of  its  corollaries, 
whatever  validity  custom  and  prescription  can  give ; 
and,  secondly,  that  there  has  always  been  a  rich  and 
influential  class  of  men  in  the  commercial  countries 
who  have  supposed  that  their  interests  were  subserved 
by  the  practical  application  of  the  doctrine.  In  respect 
to  Daniel  Webster,  the  first  great  speeches  which  he 


lyKtJ^^0^ 


488  ELEMENTS  OF  POLITICAL  ECONOMY. 

made  in  Congress,  speeches  that  foreshadowed  his 
^^^M^  '         great  fame,  were  delivered  in  1814.     These  indicate, 
Jjij^M^^  1      as  any  one  may  read  in  Benton's  Debates,  Vol.  V.,  a 
strong  hostility  to  commercial  restrictions  of  all  kinds. 
He  opposed,  and  New  England  with  him,  the  protect- 
ive tariff  of  1816.      His  speech  of  1824,  in  opposi- 
tion to  the  higher  rates  proposed  in  the  tariff  of  that 
year,  is  in  reality  one  of  the  best  free-trade  argu- 
ments ever  made.     If  he  left,  four  years  afterwards, 
this  high  ground  of  truth  and  principle,  to  occupy 
the  low^er  ground  of  what  he  deemed  expedient,  it 
J      _     «        „was  owing  to  political  stress  of  weather,  to  a  change 
f^/^y^  "^A^w-f  ^^  policy  on  the  part  of  Mr.  Calhoun  and  other  south- 
ern statesmen,  to  a  supposed  necessity  of  fostering 
manufactures  on  which  New  England  under  facti- 
tious inducements  had  embarked  on  a  large   scale. 
^        Mr.  Webster  never  justified  restriction  as  a  principle; 
'"^^  '   his  commercial  instincts  were  too  strong  for  that;  he 
always  attempted  to  justify  his  course  by  peculiar 
and    factitious    circumstances;    almost   half  of  his 
congressional  life  had  passed  away,  before  he  could 
be  brought  to  vote  for  levying  high  duties ;  and  al- 
though he  afterwards  brought  forward,  in  defence  of 
the  position  thus  assumed,  arguments  which  Politi- 
cal Economy   pronounces   unsound,   and   although 
there  doubtless  mingled  in  with  his  motives  a  desire 
to  gratify  powerful   constituents   and   friends   who 
were  directly  interested  in  high  duties,  there  is  abun- 
dant reason  to  believe  that  his  defection  from  sound 
principles  was  never  so  radical  as  has  been  com-, 
monly  supposed. 
^^  The  true  answer  to  this  objection  is,  that  many 

4   more  great  men  have  believed  in,  and  many  more 


ON  FOREIGN  TRADE.  439 

great  nations  have  acted  on,  the  doctrine  of  Free 
Trade.      Antiquity    knew   nothing    of    Protection. 
Neither  did  the  Middle  Ages.     England,  which  was 
the  first  nation  to  develop  it,  was  the  first  also  to 
abandon  it,  acknowledging,  through  every  organ  of 
her  public  opinion,  that  she  had  maintained  it  from 
the  first  at  a  constant  loss  to  herself  as  well  as  to 
the  rest  of  the  world.     The  United  States,  late  to 
adopt,  has  only  maintained  it  in  the  midst  of  an  un- 
yielding opposition,  which  has  been  able  always  to 
modify,  and  sometimes  to  reverse,  the  national  pol- 
icy.    The  most  enlightened  public  opinion  in  all  the 
world  is  hostile  to  Protection.    Nearly  all  of  the  great 
economists  of  the  past  century  have  denounced  it. 
It  still  lingers  on,  partly  because  some  of  the  argu- 
ments for  it  are  superficially  plausible,  but  mainly 
because  many  enterprising  and  prosperous  men  have 
considered  it  as  essential  to  their  pecuniary  inter- 
ests;   and  when   such    men    demand   a   champion, 
eloquence  and  arguments  are  never  long  wanting. 
As   a  matter  of  fact,  the  legislation   of  the  world 
has  been  largely  controlled  by  such  men,  and  that, 
too,  not  always  in  the  interest  of  the  masses.     It  i^f^y.^^^^ 
is  more  than  doubtful  whether  manufacturers  as  ^ 0^^^,^^,^^^% , 
whole  class  have  ever  been  permanently  benefited  a       jaI^ 
by  protective  duties,  or  rather,   it   is   certain    that  \^f^^_^ 
they  have  not  been ;  but  they  have  supposed  that  ^^^t^  eAJ 
they  were,  and  some  of  them  have  been,  prodig- 
iously benefited  ;  and  they  have  acted,  and  are  act- 
ing, on  that  supposition,  and   the   power  of  such 
men  over  public  opinion  is  very  considerable.     As  a 
class,  they  are  intelligent  and  rich,  and  can  easily 
combine  to  influence  opinion  and  legislation.     But 


440  ELEMENTS   OF   POLITICAL  ECONOMY. 

U/C^  i^v^  even  if  they  were  benefited,  as  a  whole,  by  protective 
r  ^!_/^' duties,  what  sort  of  justice  is  it  to  take  money  out 
^^"^fT"^^*^  of  my  pocket  and  put  it  into  theirs  ?  I  object  to  that. 
^y-**-*^  *  My  mickle,  and  your  mickle,  and  our  neighbor's 
mickle  will  make  a  very  pretty  muckle,  —  a  small 
tax  on  all  consumers  of  protected  goods  will  reach  a 
very  handsome  sum;  but  what  valid  claim  can  the 
manufacturers  lay  to  it  ?  They  are  a  very  deserving 
class,  and  consequently  prosperous;  but  it  may  be 
respectfully  submitted  that  they  do  not  need  unequal 
legislation  in  their  behalf.  They  are  not  a  needy  gen- 
eration, but  are  well  to  do.  The  list  of  incomes  on 
which  a  United  States  tax  was  paid,  late  annually 
published  throughout  the  country,  puts  this  fact  be- 
yond the  shadow  of  question.  In  most  sections  of 
New  England,  they  are  the  only  men  of  large  in- 
comes.  Now,  it  is  no  objection  to  these  excellent 
P^  *^*^***^men  that  they  are  rich,  and  getting  richer;  they  are 
KaaJa**-^-  rather  deserving  of  all  honor  for  their  enterprise  and 
CtlC^-^  ?  vigor  and  success ;  but  it  is  conclusive  on  this  point, 
that  they  no  longer  need,  even  if  they  ever  needed, 
any  special  protection  from  the  government.  Let 
them  stand  on  the  same  level  of  advantage  with 
other  men,  let  them  enjoy  no  unequal  privileges,  and 
everybody  will  rejoice  in  their  prosperity.  A-t  pres- 
ent they  occupy  a  false  position,  fatal  to  their  own 
genuine  self-respect,  and  to  the  hearty  congratula- 
tions of  their  fellow-citizens.  By  far  the  larger  part 
of  the  industrial  interests  of  the  country  have  no 
special  protection  at  the  hands  of  government ;  fifty- 
two  per  cent,  of  all  our  population  are  employed  in 
agriculture,  whose  interests,  as  we  shall  see,  cannot 
be  furthered  by  the  protection  to  which  it  is  com 


ON  FOREIGN  TRADE.  441 

pelled  to  pay  tribute  ;  and  of  the  whole  twenty-two 
per  cent,  employed  in  manufactures,  a  large  part  are 
engaged  in  branches  that  have  never  been  protected. 
Is  it  possible  that  the  able  men  who  own  the  mills 
and  foundries  are  willing  to  acknowledge  that  they 
are  the  only  citizens  unable  to  render  valuable  ser- 
vices to  society  without  an  artificial  prop  at  their 
back? 

(4.)  This  brings  us  to  a  fourth  objection,  namely,  V*  cr^^^^ 
Ihat^  were  it  not  for  protective  duties^  other  nations 
would  take  all  our  manufacturing  away  from  us. 
The  first  thing  to  be  said  about  this  is,  that  we 
do  not  manufacture  for  the  sake  of  manufactur- 
ing, but  for  the  sake  of  the  product,  —  it  is  not 
the  process  that  we  care  about,  but  the  product; 
and  even  if  it  could  be  shown,  as  it  cannot,  that  free 
trade  would  lessen  the  manufacturing,  that  would 
not  be  so  deplorable,  provided  we  obtained  by  it  for 
the  satisfaction  of  our  wants  as  many  or  more  man- 
ufactured products.  Satisfactions,  and  not  efforts, 
are  ultimate  in  the  field  of  exchange.  In  the  second 
place,  it  is  needful  to  look  at  the  meaning  of  the 
word,  manufactures.  So  far,  I  have  used  it  in  the 
loose  popular  way  by  which  it  has  come  to  mean 
practically  in  this  country  the  processes  by  which 
cotton,  wool,  and  iron,  are  rendered  available  for 
various  human  uses.  These  more  prominent  inter- 
ests are  currently  meant  under  the  terms  manufac- 
tures and  manufacturers;  but  of  course  the  terms 
properly  include  a  wide  range  of  efforts  beyond  these, 
indeed  almost  all  forms  of  industry  not  agricultural, 
and  not  primarily  mental.  Now  to  say,  in  the  broad 
sense,  that  protective  duties  are  necessary  in  order 


442  ELEMENTS  OF  POLITICAL  ECONOMY. 

that  manufactures  may  succeed,  is  to  make  a  state- 
I  ment  which  can  be  shown  to  be  false.     The  only 

9.  jLtv*^ r     "lagic  of  a  protective  duty  is  to  raise  the  price  of 
[^         certain  domestic  goods,  either  by  keeping  out  the 
l*<-^i^*'***^      foreign  goods  on  which  the  tariff-taxes  are  laid,  or 
L,v  ^H<^>(  by  raising  the  price  of  them  by  means  of  the  taxes 
0  80  that  the  domestic  goods  may  sell  for  the  same. 
It  is  an  attempt  to  lessen  natural  competition  by 
means  of  legislation.     If  the  first  effect  follows,  and 
the  foreign  goods  are  kept  out,  people  console  them- 
selves by  thinking,  if  foreigners  are  not  allowed  to 
bring   those   goods,  somebody  will  make   them   at 
home  for  us.     But  this  is  only  half  of  it.     Those 
branches  of  manufacture,  or  of  agriculture,  as  the 
case   may   be,  which   were    furnishing    the    goods 
wherewith  to  pay  for  those  commodities  about  to  be 
imported  but  now  prohibited,  lose  their  market.     If 
we  will  not  buy,  of  course  we  cannot  sell.     If  we 
prohibit  importations,  we  thereby  necessarily  prevent 
exportations ;  that  is  to  say,  we  take  away  their  mar- 
ket from  those  who  manufacture  or  grow  the  goods 
which  would  be  exported.     We  depress  a  profitable 
branch  of  manufacture  by  taking  away  its  market, 
for  the  sake   of  introducing  or  fostering  a  branch 
which  is  by  supposition  and  confession  unprofitable. 
The  advocates  of  protection  do  not  claim  that  branches 
of  business  which  would  otherwise  be  profitable  and 
self-supporting  should  be  protected,  but  only  the  weak 
and  less  profitable  kinds ;  and  so  to  bolster  up  these, 
protective  duties  virtually  destroy  other  branches  of 
industry,  which  only  ask  that  their  natural  market 
shall  be  let  alone,  to  maintain  an  independent  and 
profitable  existence.     It  is  impossible  to  characterize 


ON  FOREIGN  TRADE.  448 

in  terms  of  respect  so  short-sighted  and  miserable  a 
policy.  How  can  a  free  commerce  depress  manu- 
factures, when  every  nation  must  manufacture  or 
grow  a  dollar's  worth  at  home  for  every  dollar's  worth 
imported  from  abroad  ?  How  can  high  duties  foster 
manufactures  as  a  whole,  when  their  very  first  effect 
is  to  cut  off  from  their  market  all  those  manufac- 
tures which  would  otherwise  have  gone  abroad  with 
a  profit,  and  their  second  effect  merely  to  stimulate 
up  to  the  general  level  of  profit  those  which  it  is 
claimed  will  not  otherwise  yield  a  profit  ? 

If  the  second  general  effect  follows,  and  the  for- 
eign goods  still  come  in  though  enhanced  in  price 
by  the  tax,  and  the  corresponding  domestic  goods 
are  in  consequence  enhanced  in  price  because  the 
foreign  having  paid  the  tax  can  no  longer  undersell 
them,  then  all  consumers  of  both  goods  pay  an  ar- 
tificial   and   unnecessary   price,    and   manufacturers 
themselves  cannot  long  avoid  paying  this  price  on 
some  things.     If  they  could  get  their  own  product 
protected  alone,  that  would  be  one  thing,  —  a  very 
unjust  thing,  certainly,  but  profitable  to  them,  —  but  ^ 
under  a  protective  system  many  things  must  be  pro-i>1tt<^^^*, 
tected,  and  manufacturers  have  a  need  to  pray  to  ^ 
be   delivered    from    the  fruits  of  their  own  device.  '^H*^'***^ 
Some  of  them  soon  become  sufferers  under  the  sys- 
tem.    So  it  is  in  this  country  now.     Manufactures 
are  burdened  by  the  unnatural  prices  of  many  of 
their  materials.     It  is  as  the  friends  and  not  the 
enemies  of  manufactures  that  we  demand  the  abro- 
gation of  restrictive  duties;  for  manufactures   can 
never  reach  their  point  of  just  expansion  and  proper 
strength,  until  this  really  repressing  system  shall  be 


444  ELEMENTS   OF  POLITICAL  ECONOMY. 

abolished.  It  was  the  manufacturers  of  England 
who  contributed  to  inaugurate  free  trade  in  that 
country,  and  they  have  found  it  profitable;  the 
French  manufacturers  were  afraid  that  if  the  bar- 
riers of  restriction  were  thrown  down,  as  proposed  in 
the  Cobden-Chevalier  treaty  of  1860,  their  business 
would  suffer  from  English  competition,  but  the  re- 
sult showed  how  futile  were  their  fears ;  and  some 
of  the  most  penetrating  and  prosperous  of  our  own 
manufacturers  are  now  demanding  industrial  free- 
dom for  themselves  and  for  others. 
^  (5.)  A  fifth  objection  allied  to  the  last  has  been 
much  urged  by  Mr.  Carey,  namely,  that,  without 
^-LtU^-  '-  protection^  our  country  will  have  no  diversity  of  em- 
,  ?  .  ployments^  and  will  he  confined  to  agriculture.  But 
the  truth  is,  diversity  of  employments  is  rooted  in 
human  nature,  and  in  the  circumstances  amid  which 
God  has  placed  men,  and  so  far  is  it  from  law  being 
necessary  to  foster  this  diversity,  that  law  is  pow- 
erless to  prevent  it!  While  we  were  colonies  of 
Great  Britain,  the  laws  were  very  strict  against 
domestic  manufacturing  of  almost  all  kinds,  and 
yet  long  before  the  Revolution,  the  various  branches 
of  manufacture  were  introduced  and  prosecuted  in 
spite  of  the  laws:  clothiers'  mills  went  up  along 
the  mountain  streams ;  wool  and  woollens  were 
exported ;  in  1721  «  New  England  had  already  six 
furnaces  and  nineteen  forges.  The  product  of  iron 
was  still  more  active  in  Pennsylvania,  whence  a 
supply  was  furnished  to  the  other  colonies."  ^  Th 
manufacture  of  steel  was  also  attempted.  Parliament 
felt  itself  called  on  to  pass  laws  again  and  again  pro- 
hibiting under  severe  penalties  these  incipient  manu- 

1  Hildreth's  United  States,  voL  ii.  p,  297. 


ON  FOREIGN  TRADE.  445 

tactures,  sometimes  making  them  liable  to  summary 
destruction  as  "nuisances."  As  soon  as  a  branch 
of  industry  becomes  profitable,  and  suitable  to  the 
conditions  in  which  a  community  is  placed,  nothing 
but  extreme  vigilance  can  prevent  its  springing  into 
being.  Men  naturally,  spontaneously,  under  the 
pressure  of  necessity  render  to  each  other  such  ser- 
vices as  are  in  demand,  and  as  are  possible  to  be 
rendered  in  the  state  in  which  they  are  placed.  Fos- 
ter manufactures  artificially  ?  They  will  come  in 
naturally  and  inevitably  just  so  fast  and  so  far  as 
they  ought  to  come  in.  They  are  as  natural  to  men 
as  agriculture.  They  require  capital  indeed,  and  on 
a  large  scale,  a  large  capital.  So  does  agriculture. 
Capital  is  the  growth  of  time  and  of  frugality.  No 
new  society  can  come  at  once  into  all  the  forms  of 
industry  which  adorn  an  old  established  State ;  there 
must  be  a  gradual  growth  of  capital  and  of  skill,  and 
as  these  increase,  one  branch  of  industry  after  another 
comes  in,  and  finds  a  stable  foothold ;  and  as  capital 
further  increases,  and  the  rate  per  cent,  of  capital 
goes  down,  it  becomes  profitable  to  do  many  things 
which  it  would  be  sheer  folly  to  do  at  an  earlier 
period.  When  every  dollar  of  the  capital  of  a  coun- 
try can  realize  a  clear  gain  of  ten  per  cent.,  is  there 
any  sense  or  reason  in  withdrawing  a  part  of  it  into 
occupations  which  can  only  yield  six  per  cent.? 
"  But  we  must  have  diversity,"  says  Mr.  Carey. 
Certainly,  we  want  diversity,  but  only  a  natural 
diversity,  in  which  each  branch  can  stand  on  its  own 
legs,  and  not  find  it  necessary  to  tax  all  its  neighbors 
in  order  that  its  own  profits  may  equal  the  average 
of  theirs.     The  theory  of  a  protective  tariff  is  this : 


446  ELEMENTS  OF  POLITICAL  ECONOMY. 

that  certain  unprofitable  branches  of  business  shall 
be  cared  for  by  the  State,  that  is  to  say,  the  citizens 
shall  be  taxed  to  bring  up  the  profits  of  these  to  the 
'  general  standard  of  profits.      Is   a   diversity,   thus 

secured,  a  profitable  diversity?.  Would  it  not  be 
better  for  all  concerned  not  to  enter  at  present  upon 
forms  of  industry  that  by  confession  do  not  pay? 
"  But,"  urges  the  advocate  of  protection,  "  if  they  do 
\MJA  f*^  not  now  pay,  they  will  pay  by-and-by."  How  do 
\  (\  *  you  know  that  they  will?  The  fact  that  they  do 
not  now  pay,  is  not  of  itself  good  proof  that  they  ever 
will ;  and  at  any  rate,  it  strikes  a  good  many  people 
that  it  would  be  better  to  wait  till  that  time  comes, 
and  to  enter  upon  branches  of  industry  just  as  fast 
as  they  become  profitable,  and  no  faster. 

It  seems  strange  to  me,  that  Mr.  Carey,  whose 
general  confidence  in  man  and  in  nature  is  so  justly 
strong,  should  find  his  confidence  desert  him  just  at 
this  point ;  should  show  so  much  impatience  with  a 
natural  progress  of  diversity  and  association  ;  and 
should  vehemently  invoke  the  assistance  of  law  to 
help  on  diversity  within  a  sphere  for  whose  general 
freedom  he  is  a  distinguished  champion.  He  is  less 
consistent  than  the  famous  charioteer,  who,  when  his 
horses  ran  away  down  the  hill,  trusted  in  Providence 
until  the  breeching  broke,  and  then  gave  all  up  for 
lost.  Mr.  Carey  trusts  in  Providence,  and  does  well ; 
but  all  at  once,  when  to  other  passengers  as  clear- 
sighted as  himself  there  are  no  signs  of  anything 
giving  way,  he  shrieks  out  that  the  breeching  is 
breaking.  Providence  is  inadequate,  we  must  have 
recourse  to  Protection. 


ON  FOREIGN   TRADE.  447 

The  idea  that  the  United  States,  with  a  greater 
variety  and  abundance  of  natural  resources  than  any 
other  country  on  the  globe ;  with  an  industrious,  and 
enterprising,  and  skilful  people ;  with  mountain 
streams  which  leap  to  the  wheels  of  industry  with  a 
song ;  with  forests  and  coal-fields,  and  mines ;  with 
marts  and  markets,  and  navigable  lakes  and  rivers; 
with  a  genius  for  traffic,  and  a  keen  eye  to  profit,  — 
the  idea  that  the  United  States  is  to  be  reduced  to  a 
mere  farming  country,  unless  government  can  be 
coaxed  to  tax  foreigners  and  citizens  in  behalf  of 
some  branches  of  manufacture  which  are  asserted  to 
be  otherwise  unprofitable,  —  is  too  ridiculous  for 
serious  refutation.  Why,  no  nation  of  the  earth  has 
such  facilities  for  manufacturing :  the  raw  materials  ^ 
are  here ;  the  food  is  here  in  abounding  measure ;  the 
instruments  are  here  in  water,  wood,  and  coal ;  cat- 
tle and  horses  and  pastures  are  here ;  everything  is 
here  which  a  nation  can  ask  for  with  which  to  pro- 
duce either  directly  that  which  is  wanted,  or  directly 
that  with  which  to  purchase  at  the  cheapest  rates 
what  is  wanted  from  abroad ;  and  if  God  shall  give 
us  grace  to  mind  our  own  business,  to  avoid  entan- 
gling alliances  and  wars,  to  get  and  keep  a  sound 
money,  and  to  rise  above  the  silly  jealousies  which 
have  hitherto  restricted  trade,  we  shall  yet  be  the 
beehive  of  the  nations,  the  chosen  home  of  the  indus- 
trial and  civilizing  arts. 

(6.)  Mr.  Carey  finds  an  objection  to  Free  TraAe  iJ/i^^^Xi^ 
in  the  success  of  the  policy  of  Colbert,  the  famous  i^fCiylO- 
finance   minister  of  Louis  XIV.     Colbert  certainly  cy^^-^ 
did    much   for  the  prosperity  of  France,  and  well 
deserves  the  fame  which  posterity  is  so  ready  to 


448  ELEMENTS  OF  POLITICAL  ECONOMY. 

accord.  But  to  refer  the  immense  industrial  im- 
pulse which  France  received  at  that  time  in  any 
considerable  degree  to  the  restrictive  duties  laid 
*by  Colbert  on  foreign  trade,  is  an  instance,  by  no 
means  single  in  Mr.  Carey's  books,  of  a  fallacy 
called  by  the  logicians  post  hoc  ergo  propter  hoc.  It 
is  most  unsatisfactory  and  illogical  to  be  told  that 
one  thing  came  after  another  and  therefore  was 
caused  by  it.  Colbert  did  many  things  much  better 
worth  the  doing  than  to  lay  prohibitory  duties.  He 
swept  away,  so  far  as  lay  in  his  power,  all  the  obsta- 
cles to  the  freest  interchange  of  commodities  within 
the  realm  of  France.  He  abolished  the  interminable 
internal  tolls  and  duties.  He  simplified  and  reduced 
the  taxes.  Says  Henri  Martin,  —  "  We  are  struck 
with  admiration  to  see  Colbert  begin  by  reducing  an 
impost  thirty-three  per  cent.,  on  the  increased  product 
of  which  he  founded  in  great  part  his  hopes.  Tram- 
pling on  the  routine  of  the  exchequer,  he  had  com- 
prehended that  consumption  increases  in  equal  or 
even  greater  proportion  to  the  abasement  of  duties 
that  weigh  on  consumable  objects,  and  that  the  pub- 
lic treasury  does  not  lose  what  the  well-being  of  the 
people  gains."  ^  He  abolished  superfluous  offices,  and 
introduced  economy,  and,  as  far  as  possible,  honesty 
into  every  department  of  the  State.  He  emancipated 
the  Communes  from  their  old  burdens,  and  forbade 
their  incurring  new  debts.  He  renovated  the  whole 
industrial  and  financial  system ;  and  France  began 
mightily  to  prosper.  But  he  was  also  in  part,  un- 
fortunately,  a  disciple  of  the  mercantile  system.  He 
laid  heavy  duties  on  foreign  goods,  which  of  course 

1  History  of  France. 


ON  FOREIGN  TRADE.  449 

provoked  foreigners  to  lay  similar  duties  on  the  prod- 
nets  of  French  industry.  Martin  himself,  with  whom 
Colbert  is  a  hero,  acknowledges  this  consequence. 
It  has  never  been  proved,  and  never  can  be,  that  the 
high  duties  contributed  to  the  then  prosperity  of  the 
French ;  the  weight  of  bare  authority  is  about  evenly 
balanced  on  the  question  ;  but  he  who  follows  reason 
and  science  in  the  premises  will  not  hesitate  in  his 
decision. 

(7.)   A  seventh   objection   much  urged   against  a 
free  commerce  has  been,  that  other  nations  have  a 
more  abundant  capital^  and  consequently  lower  rates 
of  interest  and  profits.^  than  we  have,  and  therefore  a 
restrictive  tariff  becomes  needful.     It  is  fair  to  pre-^./ 
sume  that  they  who  say  so  know  that  foreign  trade  '^^--^^  ''-* 
depends  only  very  remotely  on  the  absolute  cost  of 
the  articles  exchanged.     If  they  do  not  know  this, 
they  are  ignorant  of  the  one  fundamental  proposition 
of  commerce,  and  their  reasonings  as  a  matter  of 
course  cannot  reach  correct  conclusions.     If  familiar 
with  this  proposition,  they  should  see  that  any  refer- 
ence either  to  lower  interest  of  money  or  to  lower 
wages  is,  in  this  connection,  entirely  irrelevant.     It 
is  a  matter  of  indifference  to  us  what  the  goods  we 
buy  from  abroad  cost  their  producers,  whether  they 
paid  high  wages  or  low  wages,  high  interest  or  low 
interest ;  we  do  not  care  about  the  absolute  cost  of  . 
production  of  anything  we  buy ;  the  question  of  inter-  ,    "^^  * 
est  for  us  is  how  much  of  the  home  commodity  must 
we  give  for  it,  and  what  does  the  home  commodity 
cost  us.    The  simple  question  that  determines  foreign 
trade  is  this, — would  the  commodity,  if  produced  here, 
cost  more  than  that  commodity  with  which  we  buy 


450  ELEMENTS  OF  POLITICAL  ECONOMY. 

it  ?  If  it  would,  then  we  profitably  import  it ;  and 
this,  without  any  reference  to  its  cost  to  the  foreign 
producer.  Whether  he  pays  high  wages  or  low 
wages,  high  interest  or  low  interest,  whether  capital 
is  abundant  there  or  scarce,  has  little  to  do  with  this 
question  of  a  profitable  exchange  of  commodities, 
and  justifies,  in  no  conceivable  manner,  the  restrict- 
ive system.  California  has  much  higher  wages  and 
a  much  higher  interest  than  New  England  ;  does  she 
need,  therefore,  to  prohibit  New-England  ships  from 
entering  the  Golden  Gate  ?  Is  it  for  her  interest  to 
put  restrictions  on  New-England  goods  ?  Does  New 
^^^^.^fL .  England,  because  wages  are  lower  here,  get  more  than 
her  share  of  advantage  in  the  California  trade  ?  If 
not,  no  more  would  England  or  India  in  a  trade  with 
us.  We  trade  with  all  the  world :  some  parts  have 
a  higher  rate  of  wages  and  interest  than  we ;  some 
parts  have  a  lower  rate  ;  so  far  as  that  matter  is  con- 
cerned our  trade  may  be  equally  advantageous  with 
them  all. 

To  this  law  of  foreign  trade  there  is,  however, 
a  single  not  unimportant  exception.  When  two 
nations  go  into  the  market  of  the  world  with  the 


U^^ 


^vM^yic 


H^j- 


^  ,-,  /  same  commodity,  to  buy  gold  and  silver,  then  the 
absolute  money-cost  of  that  commodity  is,  aa 
between  the  two,  an  important  question.  That  one 
of  the  two  nations  whose  wages  are  lower,  and 
whose  rate  of  interest  is  less,  in  the  manufacture  of 
the  common  commodity  will,  in  a  trade  for  gold, 
under-sell  the  other — that  is,  can  afford  to  give  more 
of  its  commodity  for  an  ounce  of  gold,  because  its 
commodity  has  cost  less  in  gold.  This  is  clear,  and 
it  is  the  only  case  where  foreign  trade  is  determined 


ON  FOREIGN  TRADE.  451 

by  the  absolute  cost  of  production.     But  our  object- 
ors get  no  crumb  of  comfort  here ;  for  in  the  first  place, -JKx    <l^ 
the  commerce  of  the  world  is  not  a  commerce  for^ 
gold  and  silver,  but  a  commerce  of  commodities,  in  tl^Q^^^'^'^^^^^y^^*^ 
exchange  of  which  relative  cost  is  the  only  principle.  ^  ^^^  w-O-r 
And  in  the  second  place,  when  two  nations  go  into 
the  market  of  the  world  for  gold,  they  rarely  carry 
the  same  commodity,  but  carry,  each  its  own  pecu-  %^  ^•^^ 
liar  commodities,  in  the  production  of  which  it  has^^J.,^^  Cv^ 
the  greatest  advantage.     They  have  a  strong  motive  .vvv<v4vfvo<i 
to  do  this  always,  for  that  which   they    have   the 
greatest  advantage  in  producing  will  buy  all  other 
commodities,  gold   included,  at  the   cheapest   rate. 
Here  too  the  relative  cost  decides.     And  in  the  third 
place,  if  two  nations  do  carry  the  same  commodity 
into  the  same  market  to  buy  the  same  gold,  and  the  •■  ^^     ,^ 
nation  whose  wages  and  profits  are  higher  is  thereby 
at  a  disadvantage  in  the  trade,  how  is  a  restrictive 
tariff  at  home  to  help  that  matter  ?    The  true  remedy  ^c^  i 
is  to  cultivate  our  own  peculiar  advantages  to  the  cvvJi Ay>.vcU, 
highest  point,  and  carry  those  commodities  abroad^    .    •       ' 
to  buy  our  gold,  and  not  endeavor  to  compete  with 
our  neighbor  in  the  same  commodity.     High  wages  ^^ 
and  high  profits  are  a  vast  national  advantage ;  re-  ^OuJ^i  Cu^, 
strictive  systems  tend  certainly  to  reduce  them  ;  but  (, ,;  L  ^v/-«i^ 
shall  we  throw  away  a  great  advantage  enjoyed  by      :l  l^i.A^ 
all  laborers  and  all  capital  in  all  departments,  in  order 
to  compete  with  less  fortunate  nations  in  a  single 
trade  with  a  single  commodity  ?     The  folly  of  this  is 
patent;  especially  as  the  United  States  is  a  gold- 
producing  country,  and  not  only  supplies  herself  with 
gold,  but  half  the  world  besides.     The  United  States 
produced  in  the  twenty  years  from  1848  to  1868, 


452  ELEMENTS  OF  POLITICAL  ECONOarST. 

$1,255,000,000  of  the  precious  metals.^     Besides,  is 
it  not  a  little  strange  to  hear  the  doctrine  seriously 
propounded  that  we  are   put  at  a  disadvantage  in 
foreign  trade,  and  that  restrictions  are  made  neces- 
sary, because  on  the  whole  we  are  making  so  much 
Usj^V  ^^v-Q'-^j-'^'-   ino^t'y  '?     If  the  current  rate  of  interest  and  profits 
j-  I  <y^^,^.,    is  so  high  with  us,  it  shows  that  we  are  doing  well 
on   every  hundred    invested!     One   would   suppose 
that   capitalists   might   be  content  with   such    high 
profits  !     At  any  rate,  one  would  think  that  the  dis- 
advantage in  trade  would  rest  with  those  who  get 
the  less   returns   on  their  investments,  rather  than 
with  those  who  get  the  larger  returns ! 
Q  ,  Skill  in  manufacturing  is  most  likely  to   be  de- 

'^^''"^^''•'^-j'-^*^^*' veloped  in  any  country  under  the  freest  competition, 
^'^^^^'^  T"*T^ ^  under  circumstances  which  make  everything  depend 
wXc  U  tl^^  on  relative  skill,  rather  than  under  circumstances 
J-tA'^tt^V^^-uLwV  which  make  very  little  depend  on  it;  and  capital  is 
^<,)^^L<1  most  likely  to  be  acquired,  other  things  being  equal, 

in  that  country  in  which  each  man  enjoys  the  right 
of  selling  his  product  in  the  best  market  wherever  that 
market  is  to  be  found.  The  sharp  spur  of  emula- 
tion, added  to  the  keen  impulse  of  interest,  carries 
skill  to  its  highest  point,  and  the  opportunity  to  buy 
in  the  cheapest  market  and  sell  in  the  dearest,  carries 
capital  to  its  highest  point,  and  a  restrictive  tariff"  is 
only  an  impediment  to  both.  Skill  and  capital  will 
create  commodities,  either  those  directly  wanted,  or 
those  indirectly  wanted  with  which  to  buy  the 
others.  If  these  others  can  really  be  obtained  by  us 
at  a  less  expense  of  effort  through  exchange  than 
directly,  is  there  a  decent  reason  why  we  should 
prefer  to  get  them  by  a  harder  when  an  easier  way 

1  J.  Ross  Browne's  Report,  1868. 


ju 


ON  FOREIGN  TRADE.  453 

is  open?  We  shall  not  get  them  without  being 
obliged  to  pay  for  them,  and  to  pay  for  them  will 
require  a  full  expenditure  of  effort  and  skill.  If  for- 
eigners have  the  advantage  over  us  in  some  things 
we  have  the  advantage  over  them  in  many  things  ; 
and  all  exchange  and  all  the  profits  of  it  depend  on 
relative  superiority  at  different  points. 

(9.)   An  eighth  objection  to  free  trade  has  been 
plausibly  and  pertinaciously  urged,  namely,  that  each 
nation  ought  to  he  independent  of  others  in  all  the 
more  essential  articles  of  life;  and  therefore  protec- 
tive duties  ought  to  be  laid  in  order  to  compel  the 
nations  to  make  or  grow  all  articles  of  prime  neces- 
sity for  themselves.      The   objection    divides   itself 
into   two    parts,    the    postulate   and    the    inference, 
and  it  shall  be  considered   in  that  order  and  rela- 
tion.    First,  every  nation  ought  to  be  independent  ^^p^''  '^.'  ] 
of    others   in   respect    to    the   supply   of    its    more''^^•>^^'^*''^  '^  '' 
necessary   wants,    such    as    food,    clothing,   means  'h^.4<^jf^^'-^^^^ 
of  defence  and  offence,  and  so  on.     But  what  is  it 
to   be   independent?     I  suppose   it  means,  in  this 
connection,  to  be  sure  of  getting  what  is  wanted  *    I    \    -v 
under  all  contingencies.     But  is  an  individual  man   7^^'''      ^^^ 
to   be  regarded  as    "  dependent,"  and   as  likely  to  '  ^  ^'fv.C'tuV^. 
lose  his  bread,  unless  he  devote  himself  to  the  grow- 
ing of  food  directly?     If  he  only  has  wherewithal 
to  buy  food,  I  take  it  that  he  is  just  as  "  independ- 
ent," just  as  likely  to  get  it,  as  if  he  produced  it 
himself;   and   so   a  nation  which  has    products  to 
offer  which  are  in  demand  in  the  world  without,  is 
very  sure  of  getting  whatever  it  wants,  provided  it 
is  anywhere  to  be  bought,  and  is,  in  my  apprehen- 
sion of  it,  in  a  very  "  independent "  position.     Pro- 


454  ELEMENTS  OF  POLITICAL  ECONOMY. 

tectionists  have  degraded  language  and  degraded 
exchange  by  trying  to  make  it  appear  that  a  man 
and  a  nation  are  reduced  to  conditions  of  depen- 
dence whenever  they  find  it  for  their  interest  to  buy; 
but  the  truth  is  that  there  is  nothing  dependent  in 
buying  and  selling;  the  parties  stand  on  a  footing 
of  perfect  equality  towards  each  other ;  each  is  at 
the  same  moment  buyer  and  seller ;  one  is  as  inde- 
pendent as  the  other,  and  nobody  can  be  more  so 
than  either,  except  the  savage  and  the  hermit,  who 
live  in  a  state  of  isolation.  Moreover,  every  nation 
does  of  course  devote  itself  directly  to  the  supply  of 
its  principal  wants,  and  always  continues  to  do  so, 
unless  it  appears  that  it  can  supply  those  wants 
more  cheaply  through  exchange.  If  it  can  supply 
them  more  cheaply  through  exchange,  it  becomes, 
in  my  judgment,  more  "  independent "  by  doing  so ; 
more  independent  of  irksome  effort,  and  more  sure 
of  getting  its  wants  supplied,  since  now  it  draws  its 
supplies  from  a  wider  surface,  from  any  point  in  the 
wide  world  where  such  supplies  are  to  be  had  and 
where  its  own  products  are  in  demand.  So  far  as 
food  is  concerned,  this  objection  sounds  but  poorly 
in  the  mouths  of  protectionists,  who  are  the  men 
perpetually  bemoaning  the  prospect  that  every  na- 
tion, unless  it  follow  their  advice  and  lay  protective 
duties,  will  be  exclusively  agricultural. 

But  the  inference  is  even  less  defensible  than  the 
postulate.  Let  it  be  admitted,  for  argument's  sake, 
that  to  buy  is  to  be  dependent,  and  that  every  nation 
loses  a  part  of  its  independence  by  every  act  of  for- 
eign exchange  by  which  it  obtains  its  necessary 
supplies;  does  it  follow  that  protective   duties  are 


ON  FOREIGN  TRADE.  455 

the  true  remedy  ?  No.  Prohibition  is  the  barrier  to 
hold  up  before  the  waning  independence  of  the  na- 
tion. Why  allow  a  thing  to  go  forward  under  more 
onerous  conditions,  which  under  less  onerous  was 
proving  fatal  to  independence  ?  If  for  the  citizens 
to  import  freely  be  so  disadvantageous  to  their  inde- 
pendence, how  disastrous  must  it  be  to  have  the 
importations  still  go  forward  under  a  tax  in  addi- 
tion, which  the  citizens  must  pay ! 

(9.)  The  last  objection  to  a  free  commerce  that 
will  be  noticed  here  is,  that  the  higher  paid  labor  of 
this  country  makes  it  impossible  for  us  to  trade  freely 
with  those  nations  in  which  a  lower  rate  of  wages 
prevails.  This  objection  has  been  more  than  once 
impliedly  answered  in  these  pages ;  but  it  requires, 
and  can  be  given,  a  specific  refutation.  There  is  a 
subtle  but  complete  fallacy  in  it.  It  is  one  of  the 
many  fallacies  that  have  their  lurking-place  around 
the  word  "  ivagesP  It  is  admitted  that  the  rate  of 
wages  rules  higher  in  this  country  than  in  European 
countries,  and  all  good  citizens,  I  believe,  rejoice  that 
the  reward  of  laborers  is  high  here,  and  desire  it  to 
become  higher  rather  than  lower  in  the  time  to  come.  iL^i  ^ 
But  a  high  rate  of  wages  does  not  necessarily  im-  >'  /  '^ 
port  a  high  cost  of  labor.     This  was  demonstrated  at  ^'^'^ 

length  in  our  chapter  on  Cost  of  Production.     The  (j-U^c 

cost  of  labor  to  the  capitalist  is  made  up  of  three  j^  j 

elements :  first,  the  nominal  rate  of  wages ;  second, ^'^^^  ^  <^<^ 
the  efficiency  of  the  labor;  and  third,  the  dearness'W*^-*^ 
of  the  commodity  in  which  the  laborer  is  paid.     It        . 
would  seem  to  be  a  patent  fallacy  to  confound  one  w^^*^'^*^ 
component  with  a  resultant  of  three  components;  V^-rf^^ 
and  yet  our  present  objector  invariably  proceeds  in  \y    ^^^■'*^^ 


ijaU^»^^f^'^ 


456  ELEMENTS  OF  POLITICAL  ECONOMY. 

his  discussions  as  if  a  high  rate  of  wages  means  a 
high  cost  of  labor.  He  uses  the  former  term  as  if  it 
were  synonymous  with  the  latter.  The  arguments 
proceed,  and  the  conclusions  are  reached,  on  the  as- 
^  .  sumption  that   the  cost  of  labor  is   higher  in  this 

f  •n/'^  ^  'v  country  than  in  Europe,  while  all  that  is  asserted  in 
l^U-^  t  Uj^/-  the  premise,  and  all  that  is  true,  is,  that  the  nominal 
5  ^  rate  of  wages  is  higher.  The  logical  force  of  the  pro- 
cess and  the  security  of  the  conclusion  are  destroyed 
the  moment  it  is  perceived  that  rate  of  wages  and 
cost  of  labor  are  two  very  distinct  things.  It  is  for- 
tunate for  the  United  States  that  the  two  things  are 
distinct ;  for  while  the  rate  of  general  wages  is  higher 

here  than  in  Europe,  the  cost  of  general  labor  is  lower 

t4*i /u*  2iv^.^  here  than  in  Europe.  The  unmixed  evils  of  a  de- 
bauched currency  are  perhaps  disguising  this  truth 
at  the  present  moment,  but  it  is  a  truth  nevertheless 
that  cannot  be  questioned  when  the  light  of  the  fol- 
lowing considerations  is  cast  upon  it.  (1.)  The  cost 
of  labor  must  be  lower  in  this  country  than  in  Eu- 
rope because  the  rate  per  cent,  of  capital  is  higher. 
Labor  and  capital  alone  conspire  in  production. 
Profits  are  the  leavings  of  the  cost  of  labor.  If,  there- 
fore, on  every  hundred  invested  the  rate  of  profit  is 
higher,  the  conclusion  is  unavoidable  that  the  cost 
^M-u>  i^  M(i  ^^  ^^^^^  ^s  lower.  (2.)  To  account  for  this  lower 
cost  of  labor,  we  have  (a)  The  fact  of  the  greater 
efficiency  of  labor.  The  greater  the  efficiency  of 
labor,  other  elements  as  before,  the  less  its  cost  to 
the  employer.  Labor  is  more  efficient  here,  because 
the  motives  to  labor  are  stronger  aqd  higher,  because 
the  general  tone  of  things  is  more  energetic,  and  be- 
cause labor,  all  departments  being  considered,  is  more 


trvc     Jt  tv 


ON  FOREIGN  TRADE.  457 

generally  armed  with  labor-saving  appliances.  We 
have  (b)  The  usually  cheaper  cost  of  that  in  which 
labor  is  paid.  Abroad  the  laborer  is  paid  in  gold 
and  silver.  Here  he  is  usually  paid  in  a  depreciated 
currency.  Besides  this,  the  price  of  general  com- 
modities even  on  a  gold  standard  is  usually  higher 
here  than  abroad.  Therefore  the  cost  of  even  gold 
to  pay  his  men  is  less  to  the  employer  here.  We 
have  (c)  The  fact  that  fewer  persons  are  employed,  ^^^  J  /)  a 
establishments  that  do  equal  work,  here  than  there. /'^''^  ^'^ 
There  there  are  more  supernumeraries,  more  persons 
more  or  less  pensioned  by  the  establishment,  more 
gradations  in  authority,  more  wages  of  superintend- 
ence. Here,  the  fewest  possible  number  of  persons 
is  employed,  there  is  comparatively  little  superin- 
tendence, and  each  person  is  put  upon  his  or  her  full 
power  of  work.  We  have  \d)  The  fact  that  our 
laborers  are  usually  temperate,  and  are  ready  to 
begin  their  work  on  Monday  morning;  while  most 
of  the  common  laborers,  in  Great  Britain  certainly, 
are  more  or  less  intemperate,  and  come  late  and  en- 
feebled to  their  work  from  their  Sunday's  debauch. 
Besides  these  considerations,  the  excess  in  nominal  OVfy^^i^'^^'- 
wages  paid  is  not  so  great  as  is  commonly  supposed, -*'''^*'-'  '^ '^^ 
allowance  being  made  for  the  different  currencies.  A 
skilled  artisan  in  England  earns  eight  shillings  ster- 
ling per  day,  that  is,  two  dollars  in  gold.  Our  own 
skilled  artisans  earn  not  much  more.  "  The  English 
agricultural  laborer  who  earns  fifty  cents  or  two  shil- 
lings sterling  per  day,  earns  say  three  pounds  per 
month,  and  pays  about  this  sum  for  the  annual  rent 
of  his  cottage.  Now  the  laborer  in  this  country  sel- 
dom pays  his  annual  rent  by  a  month's  wages."  ^ 

1  Sidney  Homer. 


458  ELEMENTS  OF  POLITICAL  ECONOMY. 

Our  Bureau  of  Statistics  gives  the  wages  of  14 
classes  of  operatives  in  woollen  mills  in  England, 
and  the  corresponding  wages  here  reduced  to  gold. 
Our  average  is  only  21.89  per  cent,  higher  than  theirs. 
The  figures  of  our  last  census  scatter  a  good 
many  illusions,  and  among  others  the  illusion  that 
wages  are  the  great  element  in  the  cost  of  manu- 
facturing. They  are,  in  fact,  19.40  per  cent,  of  the 
value  of  the  product  in  the  manufacturing,  mechan- 
ical, mining,  and  fishing  industries  of  the  United 
States.  The  value  of  the  materials  used  is  57.19 
per  cent,  of  the  value  of  the  product.  The  remain- 
ing 23.41  per  cent,  of  value  of  product  is  due  to 
buildings,  machinery,  profit,  and  so  on.  Wages  in 
the  cotton  and  woollen  industries  taken  alone  con- 
stitute still  less  an  element  of  cost  than  the  average 
in  all  the  similar  industries  given  above,  19.40  per 
cent.  If  we  call  wages  in  round  numbers  20  per 
cent,  of  the  value  of  the  product,  and  if  American 
wages  in  woollens  are  20  per  cent,  higher  than  Eng- 
lish wages  in  woollens,  then  England's  advantage 
over  us  in  woollen  wages,  conceding  to  her  laborers 
equal  efficiency^  is  only  20  per  cent,  of  20  per  cent., 
or  4  per  cent,  of  the  whole  value.  So  throughout. 
The  advantage  that  Great  Britain  has  over  us  in 
free  materials  outweighs  manyfold  any  possible  ad- 
vantage she  can  have  in  lower-priced  labor.  Mate- 
rials are  an  element  nearly  three  times  larger  in  cost 
of  manufacturing  than  wages  are.  Besides,  low- 
priced  labor  is  apt  to  be  very  poor  labor.  It  is 
one  of  our  grand  advantages  that  our  labor  is  not 
pauper-labor,  but  the  opposite  of  it.  Low- wages 
countries  are  always  afraid  of  the  competition  of 


ON  FOREIGN  TRADE.  459 

high-wages  countries,  and  justly  so.  It  is  the  com- 
petition of  England  that  is  most  feared  on  the 
Continent  of  Europe,  though  English  wages  are 
the  highest  in  Europe.  With  our  still  higher  wages 
we  have  wrested  many  an  industrial  triumph  from 
England  herself;  at  the  Vienna  Exposition  in  1873, 
American  woollen  cloths  were  exhibited  whose  ab- 
solute cost  per  yard  was  less  than  that  of  any  cor- 
responding European  cloth  exhibited.  What  could 
we  not  do  with  a  good  money  and  a  free  commerce ! 

I  have  now  answered,  with  what  success  the  reader 
must  judge,  every  considerable  argument  that  I  am 
aware  of  as  urged  in  this  country  against  the  policy 
of  a  free  commerce.  I  have  a  few  brief  objections 
to  add  to  the  opposite  doctrine  of  Protection. 

(1.)  It  is  no  part  of  the  proper  province  of  govern-  ^'Xa-4a>^ 
ment  to  undertake  to  redistribute  the  rewards  of  in- 
dustry. Government  has  a  right  to  take  a  part  of 
the  fruits  of  every  man's  industry  for  its  own  main- 
tenance ;  but  when  it  goes  beyond  this,  and  forcibly 
takes  a  portion  of  the  fruits  of  one  man's  industry  to  ^ )  .  , . 
reward  another  man's  industry,  it  steps  out  of  its  '  f  ^  ? 
true  sphere.  Every  man  has  a  right  to  all  the  re- 
wards of  his  own  industry,  except  as  to  that  part 
which  government  takes  in  legitimate  taxation.  No 
government  is  wise  enough,  or  ever  will  be,  to  say 
how  much  of  the  results  of  my  labor  I  shall  con- 
tribute to  my  neighbor  to  remunerate  his  labor. 
Congress  has  nothing  to  say  about  that.  Congress 
is  bound  to  give  us  both  the  benefit  of  equal  laws, 
and  then  to  leave  us  both  to  take  care  of  ourselves. 
It  is  no  part  of  the  duty  of  Congress  to  see  that  any 
set  of  men  whatever  are  making  money.  When, 
therefore,  any  branch  of  industry,  in  the  exigencies 


460  ELEMENTS  OF  POLITICAL   ECONOMY. 

of  business,  is  depressed,  for  the  leading  men  in  it  to 
go  to  Congress  with  their  tale  of  woe,  to  induce  that 
body  to  lay  a  tax  for  their  relief  on  their  neighbors, 
to  empower  them  to  pass  round  the  hat  in  the  com- 
munity, like  mendicants,  and  compel  other  men  to 
drop  their  contributions  into  it,  is  as  pitiful  on  the 
one  side  as  it  is  extra-governmental  on  the  other. 
The  American  people  are  patient,  but  they  have 
borne  with  this  sort  of  thing  about  as  long  as  they 
will  bear  with  it. 

(2.)  It  is  a  second  objection  allied  to  the  first,  that 
uu^  c£]     the  protective  scheme  is  wholly  a  matter  of  finesse. 
^    7*    If  all  interests  were  "  protected  "  and  "  protected  " 
alike,  the  issue  of  all  the  distributions  and  redistri- 
butions would  be  that  all  would  stand  relatively  as 
j^  ^/j  before,  but  worse  off  by  the   losses   of  the   process. 
Therefore  it  becomes   a   struggle   of  interests ;  and 
each  interest,  or  combination  of  interests,  endeavors 
both  to  get  itself  "  protected "    and   that   the  rest 
shall  not  get   "  protected."     The  woollen  men,  for 
,  example,   are   anxious   for    high    duties    on   foreign 
';  '•  woollens,  but  are  much  less  anxious  for  high  duties 

>^  W^*^»'*i  on  foreign  wools.  The  wool- growers,  however,  do 
not  see  why  they  are  not  as  much  entitled  to  "  pro- 
tection," that  is  to  say,  to  rob  the  public,  as  the 
woollen  manufacturers.  It  would  be  difficult  for 
anybody  to  see  why  they  are  not  as  much  entitled 
to  it.  Which,  then,  shall  get  the  better  of  the  Com- 
mittee  of  Ways  and  Means  ?  That  is  the  question. 
It  is  a  question  of  lobbies,  of  influence,  of  indirect 
or  direct  bribery.  So  of  other  interests.  The  fact 
is,  that  the  leading  interests  protected  have  been 
obliged  to  yield  so  much  to  the  pressure  of  other  in- 


ON  FOREIGN  TRADE.  461 

terests  with  equal  claims  to  protection,  that,  with  a 
few  exceptions,  no  classes  would  be  benefited  so 
much  by  the  abolition  of  all  protection  as  would 
they.  They  have  purchased  the  right  to  pluck  the 
community  at  one  point  by  conceding  to  other  par- 
ties the  right  to  pluck  them  at  a  dozen  different 
points.  The  woollen  manufacturers,  for  example, 
have  to  pay  a  considerable  duty  on  foreign  wools, 
a  high  duty  on  foreign  machinery,  and  an  enor- 
mous tax  for  protection  on  every  pound  of  iron 
they  use.  If  now  the  principle  of  protection  were 
abandoned,  they  would  be  relieved  of  all  the  con- 
tributions levied  on  them  by  others,  and  the  public 
would  be  relieved  of  the  contribution  levied  on  it 
by  them.  It  would  be  a  relief  all  round.  The 
interests  of  the  manufacturers  are  coincident  with 
the  interests  of  the  public.  The  product  cheapened 
by  the  abolition  of  all  these  high  duties,  as  well 
those  which  the  manufacturers  have  to  pay  as  those 
which  specially  protect  them.i  would  find  a  vastly  ex- 
tended market,  not  at  home  only,  but  also  abroad ; 
and  such  depressions  in  business  as  the  woollen  men.-^^^'x  i\ 
are  now  suffering  from  would  become  rare  indeed,  ly^,^^^,l/!\ 
Those  branches  of  business,  and  they  are  numerous 
and  important,  which  have  never  had  a  syllable 
of  protection  in  the  United  States,  have  been  the 
most  prosperous  and  are  now  the  strongest.  They 
have  to  send  no  delegations  to  Washington.  They 
expend  the  ingenuity  and  the  money  which  protected 
interests  spend  in  artifices,  in  the  development  of 
their  business  ;  and  they  have  found,  what  the  others 
at  no  distant  day  will  find,  that  honest  industry  and 
skill  are  better  in  the  long  run  than  the  highest 
strategy  of  the  lobby. 


462  ELEMENTS  OF  POLITICAL  ECONOMY. 

.  (3.)  Protection  is  a  wasteful  way  to  reach  the  end 

fjLM^*i44r  ostensibly  proposed  by  it.  It  is  claimed  to  be  need- 
h^-^l  K*M/*I  ftil  to  encourage  weak  branches  of  business.  Let  us 
suppose  for  argument's  sake,  what  would  be  folly  to 
concede  in  reality,  that  it  is  desirable  for  the  public 
to  encourage  a  presently  unprofitable  business.  How 
can  it  most  cheaply  and  most  certainly  do  this  ? 
Clearly  enough,  by  offering  a  direct  bounty  on  all 
that  is  actually  produced.  Let  the  public  know 
what  it  gets  for  what  it  gives.  Suppose  the  article 
wanted  be  hats.  It  is  unprofitable  at  present  to 
manufacture  hats,  but  the  public  thinks  it  desirable 
to  introduce  the  manufacture  at  the  expense  of  the 
people.  Very  well.  Let  the  government  offer  to 
pay  outright  from  the  public  chest,  say  $2,  for  all 
hats  of  a  certain  quality  made  in  the  country.  The 
bounty  would  be  paid  only  so  far  as  the  manufac- 
ture was  actually  carried  on.  This  stimulus  would 
be  explicit.  All  would  be  open  and  above-board. 
RA^>^A^W  Everybody  could  see  what  was  done,  and  what  it 
Ly^^(f,.  was  done  for.  This  would  be  demonstrably  the 
i  cheapest  and  most  certain  way  to  encourage  hat- 

'  making.     For  suppose,  on  the  other  hand,  the  pro- 

tective method  be  adopted,  and  a  duty  of  ^2  apiece 
be  laid  on  foreign  hats  to  encourage  the  home  manu- 
facture. Every  consumer  now  pays  an  extra  $2  for 
his  hat,  but  there  is  no  assurance  that  anybody  will 
go  into  hat-making.  Nobody  is  pledged  to  do  it. 
It  will  depend  upon  the  comparative  prospect  of 
making  money  in  that,  or  other  business,  whether 
that  business  is  continued  and  developed  under  the 
duty.  Suppose,  however,  that  the  home  market  is 
one  half  supplied  by  the  home  production,  and  one 


ON  FOREIGN  TRADE.  463 

half  by  the  foreign  article  enhanced  $2  in  price  by 
the  duty.  Suppose  the  market  takes  2,000.000  hats. 
Then  $4,000,000  are  paid  by  consumers  to  encour- 
age hat-making,  when  $2,000,000  in  bounties  would 
encourage  it  to  the  same  extent.  Unless  the  duty  be 
so  high  as  to  keep  out  the  foreign  article  altogether, 
there  is  a  good  deal  of  money  paid  by  the  people  for 
hats  that  does  not  encourage  hat-making.  The  sys- 
tem is  wasteful.  Why  then  is  it  preferred  ?  It  is 
preferred  for  the  same  reason  that  the  fisherman  pre- 
fers water  a  little  muddy  to  fish  in.  The  destined 
prey  cannot  see  the  operation  of  things  so  well  I 
Protection  is  a  cover  under  which  the  people  are 
cheated.  Is  it  strange,  then,  that  the  people  grow 
indignant  ? 

(4.)    Protection    makes   a    promise   at  the  outset   , 
which  it  rarely  fulfils.     Special  interests  ask  for  pro-  pM'iMvb 
tection  to  enable  them  to  "  start,"  holding  out  the    i^.fc^uu; 
promise  that  they  will  soon  be  able  to  walk  off  alone,  i^  J^^^ 
Unluckily,  the  facts  all  show  that  that  time,  in  their 
judgment,  never  comes.    The  interests  which  are  the 
most  highly  protected  in  the  United  States  at  this 
moment,  "  started  "  in  Massachusetts  more  than  two 
centuries  ago  !     The  manufacture  of  linen,  woollen, 
and  cotton   cloth  was   begun  in   Massachusetts  in 
1638,  in  Rowley,  by  some  families  from  Yorkshire; 
and  became  so  remunerative  in  less  than  three  years 
that  several  acts  of  the  General  Court  designed  to 
stimulate  it  were  repealed.^      The  manufacture   of 
woollens  began  in  Massachusetts  235  years  ago,  and 
yet  in  the  year  of  our  Lord  1873,  under  an  avowedly 
protective  system,  and  after  twelve  years*  uninter 

1  Palfrey's  History  of  New  England,  Vol.  II.  page  53. 


464  ELEMENTS  OF  POLITICAL  ECONOMY. 

rupted  experience  under  the  high  duties  of  this  sys- 
tem, we  are  told  constantly  that  ^Hhis  immense  indus- 
trial  interest  is  in  immediate  danger  of  being  destroyed 
by  foreign  importations  !  "  Do  not  these  facts,  and 
they  might  be  multiplied  indefinitely,  throw  a  little 
discredit  on  the  promises  of  protection  ?  "  We  shall 
soon  be  able  to  go  alone."  Yes :  but  when  ?  The 
duty  on  foreign  iron  of  all  kinds  is  high  at  this 
moment,  and  yet  we  read  out  of  an  unquestionable 
authority  that,  in  1676,  "  as  good  iron  was  made  as 
any  in  Spain  "  in  Massachusetts,  and  that  there  were 
"  six  forges  for  the  making  of  iron  in  the  colony."  ^ 
The  absurdity  of  this  strong  point  of  protection  is 
apparent  the  moment  its  principle  is  attempted  to  be 
applied  in  domestic  trade.  If  a  new  Boston  dry 
goods'  house  should  set  up  in  Franklin  Street  along- 
side the  old  established  houses  there,  and  modestly 
charge  its  customers  fifty  per  cent,  additional  on  all 
goods,  so  as  to  enable  it  to  "  start "  and  to  "  compete  " 
with  its  neighbors,  it  requires  no  prophet  to  predict 
that  the  "run"  of  its  trade  would  be  in  the  wrong 
direction.  Young  men,  sometimes  with  little  capital, 
are  starting  every  year  in  all  branches  of  business,  by 
the  side  of  old  firms  in  settled  business,  and  they 
succeed  by  dint  of  tact,  skill,  and  industry.  The 
United  States  will  succeed  by  dint  of  the  same, 
and  not  otherwise.  Let  us  hear  no  more,  then,  of 
this  deceptive  talk  about  "  starting."  Credat  Judceus 
Apella, 
^jr^^i^2/tXi*y^^  (5.)  Protection  always  gives  birth  to  smuggling, 
^x^%j^  and  other  frauds  upon  the  revenue.  Secretary 
.  ^^^j_jji^.  McCulloch,  in  his  Report  for  1866,  estimates  these 

1  Palfrey,  Vol.  TIL  page  299. 


ON  FOREIGN   TRADE.  465 

for  that  year  at  $92,000,000.     The  country  will  do  ^  ^^^  ^ 
well  to  ponder  over  this  instructive  official  commen-'^^'*^**'*^f* 
tary  on  the  principle  of  high  duties.     "  Gentlemen,'* 
said  Sir  Robert  Peel  to  the  House  of  Commons  in 
1842,  "  what  is  the  use  of  fixing  our  rates  so  high  as  ^ 

to  allow  the  smuggler  to  underbid  us  ?  "    Smuggling /^M^if*^^ 
has  always  accompanied  high  protective  duties,  and  ^•^  iUj^ 
always  will.     Laws  and  vigilance  have  been  unable'^iT^M.-.H.^ 
to  prevent  it.    Laws  and  vigilance  are  unable  to  pre-§U^-*^^^ 
vent  it  now.     To  evade  honest  taxation  is  a  high '^^'^  ^^^^''"^ 
crime  against  society.     To  evade  laws  passed,  noti^>^  ,r^  1 
for  revenue,  but  to  foster  class  interests  at  the  ex-'v^w^-t^'C  ^ 
pense  of  the  many,  is  a  much  less  crime.     It  is  a'^-^^-^^ 
rude  attempt  to  right  a  wrong.     Government  is  the 
first  and  main  offender.    Let  it  yield  to  all  men  their^^U^  %ccyu 
just  rights,  including  the  right  of  free  exchange  sub-|^v  i.*^*-*^*-^ 
ject  only  to  fair  taxation,  and  it  will  have  no  occa--^^^*'^^^*'*-' ' 
sion  to  harry  smugglers,  and  spend  millions  of  the 
people's  money  in  useless  vigilance.     To  levy  such 
high  duties  as  either  to  prevent  importations  or  to 
encourage  the  smuggler  is  a  gross  mistake.     The 
country  loses  its  revenue,  the  honest  importer  his 
business,  the  public  morality  becomes  corrupted,  and 
the  manufacturer  is  not  ultimately  protected.  . 

(6.)    Protection   defeats  itself.     Tariff-taxes,  like^^"^^^"^ 
other  taxes,  reappear  In  higher  prices  of  commodi-  |^-^;*^>^"^ 
ties.     If  these  taxes  be  high,  and  many,  as  they  "^ust^^^^^ 
under  a   system   of  protection,  nothing  can    hinder         nT 
high  ranges  of  those  prices  in  which  the  tariff-taxes 
directly  or  indirectly  appear.     The  protected  goods 
are  raised  in  price,  not  simply  by  the  action  of  the 
duties  put  for  that  purpose  on  corresponding  foreign 
goods,  but  frequently  also  by  the  action  of  duties 

30 


^QQ  ELEMENTS  OF  POLITICAL  ECONOMY. 

put  on  other  foreign  goods  for  the  purpose  of  pro- 
tecting somebody  else,  which  goods  have  entered  in 
as  materials  or  machinery  to  further  domestic  pro- 
duction. It  is  the  high  prices  of  these  classes  of 
goods  that  invite  foreign  importations.  Such  is  a 
good  market  to  sell  in.  As  soon,  therefore,  as  high 
tariff-taxes  have  had  time  to  work  out  in  high  prices, 

!  J^      ft*3/°'^®^S"^^^   ^^"    P^y   ^^^   ^^^^    duties  and  still  sell 

I      % .  n     and  undersell  in  such   an  artificial  market.     With 

*^   '         '     this  principle  all  facts  agree.     It  accounts  for  the 

constant  clamor  for  more  protection.  It  accounts 
^vouw»X -t|V^for  this,  that  importations  are  never  permanently 
K4hv»^vvvx/«^' stopped  by  high  duties.     Such  duties  make  prices 

artificial,  business  precarious,  losses  inevitable,  and 

"  protection  "  self-destructive. 

(7.)  Protection  cannot  raise  the  average  of  prices, 
u  -  1  It  can  raise  the  prices  of  some  things,  but  in  so  doing 
0^  ^/M^.  j^  necessarily  depresses  the  prices  of  other  things. 
-%A/»^  |V^  Prices  in  any  country  depend  on  the  quantity  and 
'^^*T^  I  qu^Vity  of  the  money  there,  relatively  to  the  quantity 
^'"^'^^^  '  and  quality  of  other  salable  things.     But  protection 

has  no  tendency  to  increase  the  quantity  of  money 

JLj^  -  jK        there.     How  can  restraints  on  a  profitable  commerce 

JXlX  e^  T^*v.'in crease  the  quantity  of  money  ?    If  therefore,  under 

^I'vJ^Jl  i^  protection,  some  things  are   raised   in    price,  there 

,      7  ^  must  be  less  money  to  go  to  other  things,  and  thej/y 

^'^  'consequently,  must  sink  in  price.    If  protected  goods, 

and  goods  into  whioh  dutied  goods  have  entered,  are 

now  higher  than  before,  then  non-protected  goods 
»  must  be  lower  than  before.     It  is  easy  to  see  that 

\it  -  *^^^  loss  ^"  P"ce  falls  largely  upon  the  exportables 
UXuiJ^r,  ^ ^^  ^  country.  Exportables  cannot  be  "protected." 
'^^     '        Their  value,  consequently  their  price,  is  determined 


ON  FOREIGN  TRADE.  467 

by  the  condition  of  the  foreign,  not  the  domestic 
market.  In  effect,  the  imports  constitute  the  market 
for  the  exports.  If  tariff- taxes  lessen  the  imports, 
the  value  of  exportables  declines  of  course.  If  the 
natural  exportables  be  manufactures,  the  protective 
duties,  if  at  all  general,  will  enhance  the  cost  of 
their  production,  and  thus  be  likely  to  exclude  them 
thereafter  from  the  foreign  market.  For  example, 
twelve  years  ago  the  United  States  exported  eleven 
million  dollars'  worth  of  coarse  cottons ;  a  protec- 
tive tariff  was  imposed,  and  this  branch  of  export 
has  nearly  ceased.  If  the  natural  exportables  be 
agricultural  products,  as  is  largely  the  case  with  us, 
the  loss  in  price  consequent  upon  protection  falls 
heavily  upon  the  farmers.  What  they  have  to  buy 
is  enhanced  in  price  by  the  tariff,  and  what  they 
have  to  sell  is  depressed  in  price  by  the  tariff  What 
reason  would  thus  expect,  the  price-lists  actually 
show.  As  manufactured  products  have  risen  in 
price,  so  raw  produce  has  declined  in  price,  under 
our  successive  protective  tariffs.^  Not  augmenta- 
tion, but  an  unjust  distribution,  is  the  art  of  protec- 
tion. Free  Trade  alone  can  maximize  the  utilities 
and  values  of  the  world. 

(8.)  Protection  is  to  be  condemned  when  judged 
of  by  its  own  fruits.  According  to  the  census  of 
1870,  there  were  in  the  United  States  one  hundred 
and  thirty-five  fewer  establishments  making  cottons, 
those  remaining  worked  up  25,000,000  pounds  less 
of  raw  cotton,  and  the  gold  value  of  the  product 
was  but  little  more  in  1870  than  in  1860.  Woollen 
manufactures  have  been  for  several  years  in  an  un- 
satisfactory condition.    Even  the  coal,  iron,  and  steel 

1  See  Colonel  Grosvenor's  Does  Protection  Protect  ?  p.  264. 


468  ELEMENTS  OF  POLITICAL  ECONOMY. 

trades,  except  the  making  of  pig-iron,  are  feverish 
and  unsettled.      Ship-building,    which    had   nearly 
ceased,  seems  just  now  to  be  reviving  a  little,  in 
spite  of  a  restrictive  tariff  and  a  depreciated  money. 
Natural  conditions  are  better  than  artificial  condi- 
tions, and  freedom  is  more  wholesome  and  profit- 
able than  restraint,  in  this  whole  field  of  exchanges. 
It  is  always  pleasant  to  be  able  to  confirm  one's 
reasonings  with  facts,  to  clench  the  nail  driven  home 
by  a  logical  process,  with  a  blow  or  two  from  the 
hammer  of  actual  experience.     It  is  fortunately  pos- 
sible to  do  this  in  regari  to  free  trade.     The  Greeks 
y^  i(\  /•'^'    ^^^  Romans,  though  the  latter  at  times  stopped  the 
J     ^     exportation  of  specie,  never  dreamed  of  putting  ob- 
^    .        '      stacles  in  the  path  of  ordinary  traffic.     At  Athens,  all 
M^ik  W  «M«M.  exports  and  imports  were  subject  to  a  duty  of  two  per 
centum.     In  the  ports  of  her  subject  allies,  Athens 
laid  a  duty   of  Jive  per  centum,  in  lieu  of  tribute. 
When,  in  a  few  exceptional  cases,  she  laid  ten  per 
centum,  it  was  denounced  as  downright  extortion. 
2Ji^cfU^^^-*l/£he  ports  of  Rome  and  Italy  sometimes  enjoyed  a 
J^/lf^jrv^ ''      perfectly  free  trade;  but  generally,  in  them,  and  in 
'  the  ports  of  the  provinces,  a  revenue  tax  of  Jive  per 

centum  was  levied  under  the  Republic,  and  two  and 
a  half  per  centum  under  the  Empire. 
^     .^    England  in  the  year  1842  abandoned  for  substance 
♦wr^<,^      ^''tbe    doctrine   of  protection,  and   seven   years  later 
;yy«  cx       abolished   a   main    feature    of  the    system    in    the 
ic*ju.  ^rr^  discrimination  till  then  maintained  in  favor  of  her 
t#W  ?  own  ships  over  those  of  foreigners  in  her  own  ports. 

There  is  nothing  now  to  hinder  American  ships 
from  competing  on  equal  terms  with  English  ves- 
sels in   the   coastwise    carrying-trade    of    England 


ON  FOREIGN   TRADE.  469 

itself.     The  English  tariffs  are  adjusted  with  a  view  )^'^^^^^ 
to  revenue  merely ;  and  in  the  late  special  commer-  M^  «MT^ 
cial  treaties  with  France,  the  English  have  persuaded 
the  French  to  lower  their  own  duties  more  than  they 
would  otherwise  have  been  inclined  to  do.    England 
claims,  through  the  mouth  of  her  responsible  min- 
isters and   statesmen,  to  set  before  the  nations  an 
honest  example  of  free  trade ;  and  invites  them,  as  I 
believe,  in  good  faith,  to  follow  her  in  the  path  which 
she  has  opened  up  for  herself.     The  force  of  this  ex- 
ample is  frequently  sought  to  be  parried  by  alleging j^,^^^^  ^  J^ 
that  England  reached  through  protection  a  point  ofCrtvvtXUH^^ 
prosperity  at  which  she  was  well  able  to  d\spense£o^%4>l4^^ ^ 
with  protection.    This  is  neither  ingenuous  nor  true;'*^!^*,,  iA^'< 
since  the  men  who  have  persuaded  the  English  gov-^^^>*-t'' 
ernment  to  abandon  the  principle  of  protection,  are  >» 

the    men  who   have  demonstrated  the    economical  ^^^^^  fy^ 
folly  of  the  principle  under  all  circumstances;  and 
have  shown  that  England  maintained  the  policy  so 
long  at  a  loss  to  herself  as  well  as  her  neighbors. 
Other  nations  can   say,    if  they  please,  "  We  will  A.^^.      ^ 
maintain   protection  as  long  as  England  did,  and  .  ^        a 
then  follow  her  example  in  giving  it  up."     But  if  'z^*^^^*^  r^ 
they  do  this,  they  will  do  it  at  a  loss,  as  England}"*-^-*^  ^  ^ 
did,  and   too   late  bemoan  their  folly,  as  England-^^^^-^^^^ , 
does.     Said  Mr.  Gladstone,  Chancellor  of  the  Eng- 
lish Exchequer,  in  1856,  —  "  There  is  one  domestic  /V^Sv»w. 
feature  which  I  wish  it  were  in  our  power  effectually  <>si-^w^.-,s/)4^ 
to  exhibit  to  the  governments  and  inhabitants  of  for 
eign  countries.     They  know  by  statistics,  which  are 
open  to  the  world,  the  immense  extension  which  out 
commerce  has  attained  under  and  by  virtue  of  free- 
dom of  trade,  and  the  great  advancement  that  has  hap« 


170  ELEMENTS  OF  POLITICAL  ECONOMY. 

pily  been  achieved  in  the  condition  of  the  people;  bui 
they  do  not  know  what  it  has  cost  us  to  achieve  this 
beneficial,    nay,  blessed   change;   what  time,   what 
struggles,  what  interruptions  to  the  general  work  of 
legislation;  what   animosities  and  divisions  among 
the  great  classes  which  make  up  the  nation ;  what 
shocks  to  our   established  mode  of  conducting  the 
government  of  the  country ;  what  fears  and  risk,  at 
some  periods,  of  public  convulsion.     These  were  the 
fine  and  penalty  we  paid  for  long  adherence  to  folly. 
We  paid  this  fine  and  penalty  upon  returning  to  the 
path  of  wisdom,  which  too  late  we  wished  we  had 
never  left.     It  is  not  easy  to  calculate  its  amount, 
but  if  it  could  be  exactly  reckoned,  and   fully  ex 
posed  to  the  eyes  of  other  nations,  our  juniors  i\ 
trade,  it  might  supply  them  with  a  timely  warning 
against  imitating  our   former   errors,  and  with   the 
best  encouragement  to   the   adoption,  before   they 
become  entangled  in  the  creation  of  artificial  inter- 
ests, of  our  recent  and  better  example." 
l^qyiMMA^^v^y     But  it  is  Said,  as  if  that  were  sufficient  to  con- 
td^ .  r^  i^  demn  free  trade,  that  England   adopted  it  out  of 
fyylp,^^  Osl    piire  self-interest.    Of  course  she  did ;  and  other  na- 
r^j^ni>V)cu^^;^*1;ions  will  also  adopt  it  from  the  same  motive.     No 
^      other  motive  is  appropriate  in  the  premises.     The 
idea,  disseminated  by  protectionists,  that  it  requires 
a  millennium  for  free  trade  to  work  in,  is  wholly  falla- 
cy eious ;   it  requires   an  enlightened  self-interest,  and 
y  J    i            ,  nothing  more ;  and  it  is  one  of  the  grand  wonders 
\"^ .     j^^^f  Providence,  that  the  elements  of  society  are  so 
'"^^    ,_    wisely  prearranged,  that,  within  the  sphere  of  ex- 
A^^*^^J'   change,  the  welfare  of  all  is  promoted  through  the 
*^^^'*''^**^^*  *  enlightened  self-interest  of  each.    Trade  is  always  self- 


ON  FOREIGN  TRADE.  471 

ish,  just  as  much  so  under  freedom  as  under  protec-  Py^^i   "tt 

don;  it  is  a  sphere  all  whose  operations  are  subject  to  0 

the  legitimate  control  of  conscience,  but  it  is  not,  and 

never  was  designed  to  be,  a  sphere  of  sympathy  and 

benevolence:  these  have  a  sphere  of  their  own,  above 

and  beyond  the  sphere  of  exchange.     When  a  man 

gives,  let  him  give,  and  enjoy  the  luxury  of  doing 

good ;  when  a  man  buys  and  sells,  let  him  honestly, 

but  with  an  eye  to  self-interest  only,  buy  and  sell 

and  get  gain. 

The  number  of  tariff-taxes  in  England  in  1842  TU^ATf^ 
was  1150;   in   1875   it   is   only  17.     The  customs-^  2£-^.'? 
revenue  has  kept  very  steady  under  the  successive /^VZ  -  iV^ 
remissions  of  these  taxes,  and  is  about  the  same  now'*^/^  ^     '' 
as  then,  namely,  X20,500,000.     Of  these  17  articles 
taxed,  5  yield  over  95  per  cent,  of  the  revenue,  and  ^[^^T^^ 
2  more    most  of  the  rest,  showing  that  a  large  rev-^^ 
enue  may  come  from  few  articles  of  exclusively  for-^  '^  <?v^«s^ 
eign  production,  as  sugar,  tea,  coffee,  tobacco,  wines,  Iju4o«V  ♦y^U- 
fruits,  and  liquors.     Under  this  remission  of  tariff' ^^^^^d^{ 
taxes  and  repeal  of  the  navigation  laws,  the  exports 
and  imports  of  Great  Britain,  which  in  1842  were 
but  little  in  excess  of  their  average  of  the  previous 
forty  years,  have  now  increased  threefold;  British 
tonnage   entered  with   cargo   more   than  threefold; 
foreign   tonnage,   fourfold;   shipbuilding,   threefold; 
exports   per  capita  between   1854   and  1868,  from 
£3  10*.  2d,  to  £6  Os,  ^d,;   imports  per  capita  in 
same  interval,  from   £5  10s.  2d.  to   £9  2s.  6d. ;  ex- 
ports of  cotton,  nearly  threefold ;  of  linen,  fourfold , 
of  iron   and  steel,  fivefold ;  of  leather,  sixfold ;  of 
haberdashery,  nearly   sevenfold  ;    of   woollen   yarn, 
«>igihtfold;    of  woollen   manufactures,  fourfold*   of 


472  ELEMENTS   OF  POLITICAL   ECONOMY. 

machinery,  tenfold.     Wages  have  increased  at  least 
25  per  cent,  in  all  skilled  enaployments,  while  hours 
of  labor  have  been  abridged  and  staple  articles  of 
food  reduced  in  price.    Paupers  have  decreased  from 
987,872  in  1870  to  784,006  in  1874  in  England. 
The  year  1860  is  memorable  in  the  history  of  Eng- 
^^**^*^  %   „  land  for  the  negotiation  and  ratification  of  the  French 
5r^»  ^»-  ^j-  Commercial  Treaty,  and  also  as  the  year  in  which 
the  remaining  duties,  avowedly  of  a  protective  char- 
acter,  were  repealed.     The  results  to  France  of  the 
relaxation  of  her  own  duties  are  only  less  brilliant 
than  those  to   England,  as  she  has  less  fully  em- 
braced the   system   of  freedom.      Comparing   1860 
with  1868,  the  volume  of  French  commerce  increased 
from   5,804,800,000  francs  to  7,979,100,000    francs; 
French   exports    to   England    from    331,775,000   to 
847,200,000  francs ;  the  export  of  butter  to  England 
from  2,500,000  to  52,000,000  francs ;  of  eggs,  from 
7,000,000  to  38,000,000  francs ;  the  whole  export  of 
^JL^'J^u^A   wines  from  800,000  to  4,000,000  gallons;  the  whole 
iS^^t-w^^^x^  manufacture  of  silks,  woollens,   and    cottons,  from 
^/Xji.j2^'  92,800,000  to  265,139,000  francs.     French  manufac- 
turers  were  afraid  of  the  competition  of  England, 
which   they  professed   to    be    unable  to  withstand. 
W.  fyy^     The  result  has  shown,  however,  that,  in  the  eight 
^^  years,  France   has  sent  to  England  four  francs  in 
a,wP^. manufactures  to  one  franc  received  from  England  in 
^*"^^  '  manufactures.     The   explanation    of  this   is   partly 
due  to  the  fact  that  the  French  have  learned  better 
than  any  other  people  the  money  value  of  elegance. 
They  have  learned  that  Beauty  is  a  source  of  Wealth, 
and  so  they  not  only  adorn  their  capital,  and  have 

1  Librarian  Board  of  Trade,  Charles  Knight's  England,  et  al. 


ON  FOREIGN  TRADE.  473 

made  it  by  far  the  finest  city  in  Europe,  attractive 
as  a  resort  to  all  the  world,  but  also  they  contrive  to 
make  all  their  handiwork  beautiful,  and  thus  control 
in  many  things  the  markets,  as  they  do  also  the 
fashions  of  the  world. ^ 

The  Zoll-Verein,  or  Revenue-Union  of  the   Ger- 
man States,  presents  a  splendid  example  of  the  pros-      » 
perity  which  follows  in  the  train  of  free  exchange*  VaA  'tA^ 
The  rate  of  imposts  on  foreign  goods  is  varied  from^*<« *'^*-«^^ 
time  to  time  by  the  Zoll-Verein   Congress,  but  ten  t)      .V 
per  cent,  is  the  maximum,  and  the  interests  of  the  j  jtL^ 

revenue  are  consulted  in  adjusting  the  rates  below      >''^*-*'*"'^'^^ 
that;    since   1851  the  raw  materials   coming   from 
abroad  are  admitted  free,  or  nearly  so.     The  pro-  R*^^  L*"*^  J 
ceeds  of  these  duties  go  into  a  common  treasury, 
and  are  then  distributed  among  the  various  members 
of    the    Union    on   the    basis   of    their    population.  %LUr^9^\ 
Every  member  without  exception    now  receives   a j;/7  ^ 

larger  revenue  than  it  did  before  it  joined  the  Zoll-^^^»,^.^j^8, 
Verein.     The  city  of  Hamburg,  a  chief  distributing /j  V/-.  Cf^Zi 
point  for  the  imports,  is  a  sort  of  bonded  warehouse gr^^-^^^^^ 
under  the  system.    The  dutiable  articles  are  arranged  ^ 
in  thirty-seven  classes ;    and   the   simplicity   of  the  '^'  {  Ct^-'sw 
rates,  the  lowness  of  the  rates,  and  the  fewness  of 
the  articles  charged  with  rates,  stand  in  striking  con- 
trast to  these  points  in  the  present  tariff  of  the  United 
States.     The  revenue  under  the  Zoll-Verein  in  1872  ivT^J^^t,,^  < 
was  40,835,009  thalers,  which  was  27  per  cent,  more^^,  ^ 

than   in   1867.     Nearly  31.11    per   cent,  was   froni^  ^.JTlLjbu 
coffee,  11.66   per  cent,   from  leaf  tobacco,  and  6.92 
per  cent  from  salt.     Thus  49.69  per  cent,  was  from 
three   articles :    9   other   articles  yielded   26.92    per 

1  This  thought  was  suggested  to  me  by  my  late  lamented  friend,  Sidney 
Homer,  of  Boston. 


474  ELEMENTS   OF  POLITICAL  ECONOMY. 

cent. ;  and  25  articles  yielded  91.24  per  cent,  of  the 
whole.     Iron,  steel,  and  their  manufactures,  are  ad- 
mitted on  easy  terms,  pig  iron  at  6  cents,  and  loop, 
JOiit?  rolled,  and  hammered  iron,  iron  and  steel  wire,  and 

^M^  o-^    cast  steel,  at  42  cents  per  cwt.,  but  the  home  produc- 
^J^^/v*^  tion  of  iron  within  the  Zoll-Verein    has   increased 
I      r^'JiJ\      steadily  with  the  increase  of  the  importation  of  for- 
eign iron  ;  so  of  other  staples ;  an  interesting  proof 
that  the  relatively  free  introduction  of  foreign  articles 
does  not  depress,  but  rather  stimulate  the  production 
*  '      of  similar   articles   at  home,  provided  there  be  fair 

*^'^*'^*^*^^^  natural  advantages.^     Only  152  articles  are  taxed. 
Wu  '^  Our  last  example  shall  be  Belgium.     The  perfect 

free  trade  which  Belgium  enjoyed  in  the  sixteenth 
/y  ^    century  gave  an  impetus  to  her  industry  and  to  her 

^^-^^**'^^  **^  commerce  which    placed  her  at  that   period  at  the 
'A-  W^M-.  ^O^  highest  pitch  of  commercial  prosperity.     From  1792 
Jvk*-.  a^»  '^'^  to  1814,  that  country  was  controlled  by  the  French, 
who  applied  to  it  the  protective  system  with  extreme 
iP^y^      rigidity.     From  1814  to  1830,  Belgium  was  united 
^,^..  ^.^j^  Holland,  and  the  two  had  in  common  a  cus- 
/f/u-^tYT^     toms'  tariff  based  on  a  maximum  duty  of  3  per  cent. 
9vH<l.  K&l^      on  raw  materials,  and  6  per  cent,  on  manufactured 
goods.     It  was  during  this  period  that  the  modern 
JLj^  "I^x^     manufactures  of  Belgium  were  brought  into  exists 
i   ^<  N^ence,  and  made  that  astonishing  progress  which  was 
rZ  ^,      demonstrated  by  an  exhibition  of  national  industry 
p**'*""'^     '       in  1830.     A  violent  revolution,  based  on  a  difference 
in  race,  language,  religion  and  traditions,  then  separ- 
ated the  Belgians  from  the  Dutch,  and  the  former 
TJUt^f^^o      reim posed  upon  themselves  a  protective  system  with 


1  Zolltarif  des  Deutschen  Zoll-Vereins.    I  am  indebted  for  a  copy  of  thu 
to  the  kindness  of  our  minister  at  Berlin,  Hon.  George  Bancroft. 


ON  FOREIGN  TRADE.  475 

such  results  in  revenue  and  trade  and  industry,  that 

M.  Frere  Orban,  then  and  now  Minister  of  Finance, 

came  forward  in  1851,  and  declared   his  intention    "^m^^^^^^  /I 

gradually  to  remove  from  the  tariff  every  duty  that 

could  be  called  "  protective."     With  this  view,  a  new 

tariff  went  into  operation   in   1855;    and   another, 

actually  fulfilling  that  intention,  in  1866;    so  that 

now,  a  tariff  is  maintained  solely  for  revenue ;  and  fi^^^^tx^  ^ 

an  almost  universal  public  opinion  finds  fault  with 

it,  not  that  it  is  so  free,  but  that  it  exists  at  all.    The 

chambers  of  commerce  in  Belgium  have  unanimously  f^4,tuJLM^^ 

passed  resolutions  advising  the  government  to  raise  o    ^^^^^vwCj"- 

the  revenue  now  raised  by  duties  in  some  other  way,  /J 

rind  thus  introduce  a  perfect  free  trade.^ 

I  have  dwelt  the  longer  on  this  question  of  free 
trade,  because  it  is  a  practical  one  now  in  this  coun- 
try, for  whose  right  solution  every  citizen  should  be 
anxious.  Some  additional  light  will  be  thrown  upon 
the  subject  in  each  of  the  three  remaining  chapters. 

i  Letter  of  M.  Vander  Maeren,  of  Brussels,  April  10, 1868.  M.  v^mder 
Maeren  is  a  manufacturer,  member  of  the  government,  and  well  Known  us 
3  "vmter  on  economic  subjects. 


476  ELEMENTS  OF  POLITICAL  ECONOMY. 


CHAPTER  XIV. 

ON  THE   MERCANTILE   SYSTEM. 

There  have  been  three  epochs  in  the  progress  of 
I    .     /  ^      the  science  of  Exchange.     Each  of  these  has  been 
^^"^^  /    ^       marked  by  a  theory  of  its  own,  of  which  the  two 
lMr>^^*J9  X       earlier  were  radically  incorrect,  yet  prepared  the  way 
for  the   third   and  true   system.     We  have  already 
sufficiently  considered   the    first   of  these   theories, 
which   assumed  that  gold  and  silver  are  the  only 
wealth,  and,  consequently,  that  the  only  way  for  a 
nation  to  grow  rich  was  to  foster  the  importation 
and  prohibit  the  exportation  of  the  precious  metals. 
The   second   commercial   theory  was   more   refined 
and  complicated ;  we  have  already  spoken  of  it  as 
the  Mercantile  System,  and  partially  explained  its 
fundamental' principle.      The  principle  was  to  pre- 
serve  the   balance    of  trade,  to   make  the   exports 
greater  than  the  imports,  so  that  the  balance  should 
I         _  A   ..  come  back  in  gold  and  silver.     The  whole  system  is 
****^    y      based  on  the    absurd  supposition    that  a  merchant 
)W-5^aii-**^will   carry  abroad  goods  worth   at  home  a  certain 
•  sum,  merely  that  he  may   bring   back   goods    and 

money  worth  as  much.      Why,  on  that  principle, 
should  he  carry  forth  goods  at  all  ? 

The  nature  of  trade,  as  mutually  advantageous, 
'  J  v.vvq-it.**-i  vvas  not  understood.  After  every  fair  mercantile 
pl^(rH^.      /  transaction,  both  parties  are  richer  than  before.    The 


ON   THE  MERCANTILE  SYSTEM.  477 

more  genuine  exchanges  there  are  between  two 
countries  the  better,  because  the  motive  for  an  ex- 
change is  always  and  everywhere  the  mutual  inter- 
est of  the  parties.  The  benefit  of  the  exchange  ia 
shared  by  both,  otherwise  there  would  be  no  ex- 
change. 

But  the  Mercantile  System  led  each  nation  to  ^  J  J  ^  J 
suppose,  that,  by  manoeuvre  and  finesse,  it  could  A,  -H  t 
obtain  more  than  its  natural  share  of  advantage.^.  ^  j^ 
England,  for   example,  in   her  trade  with   France,  *  *y^^^ 

found  that,  by  natural  tendency,  she  bought  as  much 
of  French  wines  and  silks  as  she  sold  France  of 
hardware  and  woollens.  Instead  of  being  satisfied 
with  a  legitimate  and  mutually  advantageous  trade, 
the  English,  under  the  promptings  of  the  Mercantile  0  i  ^ 
System,  say,  *'  This  will  never  do.  This  will  never  ±^jSilL 
do.     There  is  no  balance  in  our  favor.     We  mustf  /^ 

sell  to  France  more  than  we  buy  of  her,  or  else  we^K.  <i   *^  *  ^ 
get  no  balance  of  trade."     Accordingly  restrictiona<]LXjt*,*^««' 4Ww' 
are  laid  on  some  French  goods.     Their  introduction 
is  either  prohibited,  or  heavy  duties  are  levied  on 
them,  in  order  to  lessen  the  quantity  imported.    This   ^v^^  ^^^ 
is  done  in  the  hope  of  selling  to  the  French  as  rnuc\t'fT/^Qj_^    ^^ 
as  before,  but  of  buying  less,  this  is,  less   French     j]      . 
goods ;  so  that  the  difference  must  be  paid  in  gold  ^;  ^'^T^ 
and  silver.  '     ' 

All  that  was  mighty  well!     But  unfortunately  the 
gold  and  silver,  even  if  they  should  get  it,  was  no^|^^^^^^  J^ 
whit  better  than  the  French  goods,  and  would  prob-v    ^    ^^,^ 
ably  go  right  back  to  France  in  the  purchase  of  such  W 
goods.     And   unfortunately  also    the   French  were 
adepts  in  the  Mercantile    System;  they  wanted  a 
favorable  balance  too.     They  must  sell   more  than 


478  ELEMENTS   OF  POLITICAL  ECONOMY. 

lU^  "  ^       / "  they  buy.     Their  exports  must  exceed  their  imports. 

'     v-^iM^    Why  not?     And    accordingly  they   prohibit   some 

.  ,  ^1  <W^M^  species  of  English  goods,  or  burden  them   with    a 

♦4~*l7u  ^h*T^»  heavy  duty;   the  English   retaliate  by  new  restric- 

jy^^^X-^^l  *^o"s  o^  ^^^  products  of  French  industry,  and  are 

»  again  in  turn  retaliated  upon.       Thus  they  go  on 

tinkering  and  tormenting  trade  in  the  vain  hope  of 

some  imaginary  balance ! 

Because  England  and  France  are  adjacent,  and 
because  their  natural  productions  and  acquired  in- 
dustry are  so  very  diverse,  they  are  naturally  to  an 
immense  extent  mutual  buyers  and  sellers.  France 
is  gifted,  perhaps  as  much  as  any  country  upon 
earth,  in  point  of  soil,  climate,  and  natural  produc- 
tious.  She  produces  with  the  greatest  facility,  and 
in  the  greatest  abundance,  wines  and  the  cereal 
grains;  and  has  unusual  advantages  also  for  the 
culture  of  the  mulberry  and  the  manufacture  of 
silk. 

England  is  not  thus  blessed  by  Nature ;  but  she 
has  freedom,  and  industry,  and  energy,  and  skill; 
these  have  made  her  for  centuries  the  greatest  man- 
ufacturing and  commercial  country  in  the  world. 
She  has  always  had  those  things  to  sell  which 
France  wanted  to  buy,  and  has  always  wanted  to 
buy  those  things  which  France  has  had  to  sell.  Ex- 
changes between  two  such  countries  are  natural  and 
inevitable.  If  the  governments  undertake  to  forbid 
them,  then  the  business  will  be  done  by  smugglers, 
though  with  hazard  and  loss. 
UL^Jl^  Now,  the  Mercantile  System  disturbed  and  well- 

JJ^        t  nigh    destroyed   this    natural   and    profitable   trade. 

^-'^^'  r    "^^  ^^  ^"^^  England  could  buy  her  wines  of  France 


Ua  VviiA^b 


^^c/) 


<r#«^t_4 


ON  THE  MERCANTILE   SYSTEM.  479 

much  cheaper  and  of  better  quality  than  of  Portu-  -jLu.^^   ^Kj^ 
gal  ;  but  then  it  was  thought  that  the  balance  of    -  *. '      y   -r- 
trade  with  Portugal  could  be  made  more  favorable      -  /  -^  ^ 
than  that  with  France;   and  accordingly,  in  1703/'"''^  ^^^ 
the  wines  of  Portugal  were  admitted  upon  the  pay- 
ment of  a  duty  33^  per  cent,  less  than  the  duty  paid 
upon  French  wines ;  and  the  woollen  cloths  of  Eng- 
land, which   had   been    prohibited    in    Portugal   for 
twenty  years,  were  to  be  admitted  upon  terms  of 
proportionate  advantage.     Up  to  that  time  the  light 
claret  of  France  had  been  the  beverage  of  the  wine- 
drinkers  of   England.     Thereafter   the  more  intoxi- 
cating  port  became  what  Daniel  Defoe  calls  "  our 
general  draught."     It  was  a  point  of  patriotism  for 
the  Englishman  to  hold  firm  to  his  port.^     An  eco- 
nomic blunder  was  followed,  as  usual,  by  moral  dis-'^/V    A  ^}  ^ 
advantage.    Five  generations  of  English  gentry  —  forl)^^     v^ 
the  preferential  duty  was  not  abolished  till  1831—^  sriy%^ 
paid  tribute  in  increased  drunkenness  to  the  balance 
of  trade.     The  habit  of  taking   strong    stimulants 
was  established  ;  coarser  tastes  became  the  fashion  ; 
and  even  now  sherry  must  be  mixed  with  brandy  to 
be  acceptable  to  English  palates.     To  drink  worse 
wines  at  a  higher  price,  to  incur  a  habit  which  is  a 
national  disgrace,  were  not  the  only  consequences ; 
for  the  French,  to  retaliate  and  to  restore  the  balance, 
prohibited  English  woollens.     Thus  the  French  lost 
the  best  market  for  their  wines,  and  the  English  the 
best  market  for  their  woollen  goods,  which  the  French 
must  now  purchase  elsewhere  at  an  enhanced  cost. 
It  was  a  dead  loss  all   round,  —  a   gratuitous  loss 
without  any  compensation  whatever. 

1  Knight's  Bistory  of  England,  v.  267. 


480  ELEMENTS   OF  FOLITICAL  ECONOMY. 

Some  very  instructive  laws — ^^instructive  in  their 

folly were  passed  in  England  to  foster  the  woollen 

trade,  with  an  eye  to  an  ultimate  balance.     A  law 

of  1666  required  all  shrouds  to  be  made  of  wooU 

Another  law  to  the  same  effect  but  more  stringent 

P  ^tTX^  rc.    issued  in  1677.     This  was  amended  three  years  later 

?^^j^  ^  by  an  enactment,  that  all  corpses,  except  those  of 

^*'*^  *  persons  dying  of  the  plague,  should    be    buried    in 

shrouds  made  of  pure  wool,  under  a  penalty  of  <£5. 

This  law  was  repealed  in  1814. 

To  encourage  wool  involved  discouragement  to 
flax  and  cotton.  A  table-linen,  called  huckaback, 
began  to  be  extensively  made  in  England  about 
1700.  It  encountered  great  opposition.  It  was  held, 
that  Providence  had  appointed  the  woollen  manu- 
facture as  the  special  employment  of  the  island,  and 
that  the  most  acceptable  sacrifice  was  that  of  the 
flock.  Ireland  might  grow  flax  and  make  linen,  as 
some  compensation  for  the  injustice  that  had  been 
committed  towards  her  in  absolutely  prohibiting  the 
importation  of  her  cattle.  Cotton  was  also  coming 
in.  As  early  as  1719,  printed  calicoes  of  English 
production  had  become  not  only  fashionable  but 
common.  Clamor  alleged  that  the  manufacture  of 
light  woollen  stuffs  would  be  ruined ,  and  so  an  Act 
was  passed  in  1721,  to  preserve  and  encourage  the 
woollen  and  silk  manufactures,  by  prohibiting  the 
use  and  wear  of  all  printed,  painted,  stained,  or  dyed 
calicoes,  in  apparel,  household  stuff,  or  furniture. 
Of  course  such  legislation  was  nugatory ;  but  here 
is  the  evidence,  among  many  other  proofs,  of  the 
supreme  ignorance    and  folly  of  law-makers,  who, 

1  18th  Charles  II.  chap.  4. 


ON  THE  MERCANTILE  SYSTEM.  481 

from  the  earliest  days  of  the  loom  and  the  plough  in 
England,  have  struggied  to  regiment  all  industry  — 
to  encourage  or  to  prohibit  —  to  determine  what 
wages  laborers  should  be  paid,  and  what  should  be 
the  profit  of  capitalists  —  to  crush  rising  industries 
by  taxation  —  to  compel  the  people  to  eat  dear  food 
for  the  supposed  benefit  of  the  landowner — and, 
finally,  to  find  out  that  the  nation  was  never  so  uni- 
versally prosperous  ^s  when  its  industry  was  wholly 
left  to  the  care  of  itself,  under  the  guidance  of  God's- 
natural  laws.^ 

So  far  was  this  regulating  mania  carried  at  times  J^^^  **'"'*^ 
that  almost  all  legitimate  commerce  ceased  between  ^^  f>^'* 
England  and  France.     So  reluctant  was  the  one  to  ^^^'*''*^^ 
buy  of  the  other,  so  fully  were  the  statesmen  of  each  -^^^TV'^^iy 
under  the  influence  of  the  prejudice  that  the  prosper-  f^^^^^^^"*^* 
ity  of  their  neighbors  was  incompatible  with  their 
own,  that  Parliament,  in  William  and  Mary's  reign, 
decreed  that  the  French  trade  was  a  nuisance ;  and 
Adam  Smith  tells  us  that,  in  his  time,  that  is,  less 
than  a  hundred  years  ago,  smugglers  were  the  prin- 
cipal importers  of  British  goods  into  France  and  of 
French  goods  into  Britain. 

(1.)  The  laying  extraordinary  restraints  on  the  C^^jjJ^^^ 
importation  of  goods  from  those  countries  with  which  ^t|^^,;St-»  J 
the  balance  was  supposed  to  be  unfavorable,  was  f 

one  device  of  the  Mercantile  System  to  increase  the 
quantity  of  gold  and  silver  in  that  country.  It  was 
unfortunately  not  the  only  nor  the  worst  one. 

(2.)  An  obvious  second  expedient  was  to  prohibit 
altogether,  or  to  burden  with  very  high  duties,  the  in- 
troduction of  all  such  goods  as  could  be  produced  at 

1  Knight's  England^  v.  26. 
31 


482  ELEMENTS  OF  POLITICAL  ECONOMY. 

home.     If  we  can  produce  the  articles  at  home,  then 
we  shall  not  have  to  import  them,  and  that  will  help 
the   balance.     Under   the  influence   of  this  feeling, 
England,  damp  and  cold,  in  the  very  teeth  of  Na- 
^     X  ^k^^^'     ture's   protests,   undertook   to   rival    France   in   the 
i^^ZM^,^^  ^       culture  of  silk.     Heavy  restraints  were   laid  on  for- 
^,^^.  f  eign  silks,  and  the  monopoly  of  supplying  the  home 

^  market  was  given  to  her  own  manufacturers.     Cer- 

tainly, silk  can  be  made  in  England,  of  a  somewhat 
inferior  quality  and  at  a  somewhat  greater  cost  than 
in  sunnier  climes.  To  overcome  these  disadvan- 
tages, what  was  needed  was  the  healthy  stimulus  of 
competition.  If  things  had  been  left  to  take  their 
natural  course,  and  foreign  silks  had  been  admitted 
freely,  the  home  manufacturers  would  have  been  put 
upon  their  mettle  to  discover  improved  processes,  to 
invent  machinery,  to  make  up  the  disadvantages  of 
Nature  by  expedients  of  Art.  The  plant  never  be- 
comes hardy  and  strong  that  does  not  root  itself 
amid  the  breezes  of  heaven;  so  neither  does  a 
branch  of  business  grow  up  into  self-sustaining  and 
vigjorous  life  without  the  stimulating  breezes  of 
competition.  Of  this  the  case  in  hand  affords  an 
excellent  illustration.  For  more  than  a  century  the 
UsJk.(A  iL."  ^^^^  manufacture  of  England,  fenced  round  and 
"  AO  U>*-/  protected,  as  it  was  called,  by  these  restrictive  and 
^^^^^'^^^  ^^f'  Prohibitory  duties,  languished,  pined,  and  at  times 
almost  expired;  for  the  simple  reason  that  the  man- 
ufacturers,  instead  of  relying  upon  their  own  inven- 
tion, skill,  and  energy,  looked  to  the  government  for 
support,  and  to  an  artificial  monopoly  ;  and  it  would 
have  remained  till  this  day  inferior  in  design  and  in 
every  other  good  quality,  had  not  a  great  statesman, 


ON  THE  MERCANTILE   SYt'^KM.  483 

Mr.  Huskisson,  who  was  denounced  as  "  a  hard-  u 
hearted  political  economist,"  made  a  partial  begin-  . 
ning,  in  1826,  of  that  system  of  free  trade  which  has/"*"*'"''"^  ^ 
raised  this  particular  manufacture,  as  so  many  oth- 
ers, to  an  eminence  which  utterly  disregards  every 
danger  of  foreign  competition.  The  duty  on  foreign 
thrown  silk  was  then  reduced  from  nearly  fifteen  to 
five  shillings  per  pound;  and  on  raw  silk  from  nearly 
six  shillings  to  three  pence  per  pound.  The  conse- 
quence was  that  then  first  the  English  silk  culture 
began  to  thrive;  it  has  thriven  from  that  day  to  this; 
the  duties  have  been  successively  lowered,  until,  in 
1860,  the  duties  on  foreign  silks  of  every  kind  were 
abolished  by  Mr.  Gladstone ;  and  that  England, 
which  was  to  be  ruined  in  1826  by  the  importation 
of  foreign  silks,  has  been  exporting  for  years  silk  of 
native  manufacture  to  the  extent  of  about  $10,000,- 
000  annually.!  ^ 

As  an  illustration  of  the  mischiefs  which  the  Mer- 
cantile System  everywhere  introduced  into  the  realm 
of  industry,  let  us  look  at  this  instance  a  little  more 
closely.  During  the  continuance  of  the  monopoly, 
the  English  consumers  of  silk  were  obliged  to  pay 
a  very  high  price  for  an  inferior  article.  .  To  whose 
benefit  did  this  high  price  accrue  ?  It  was  designed 
to  accrue  to  the  benefit  of  the  home  manufacturer. 
The  sole  object  in  laying  the  prohibitory  duties 
was  to  prevent  importations,  and  to  leave  the  home 
market  entire  to  the  home  manufacturer.  Precisely 
at  this  point  we  see  how  the  whole  doctrine  of  Pro- 
tection grew  out  of  the  Mercantile  System.  The 
Mercantile  System  wished  to  repress  importations 
for  the  sake  of  the  balance  of  trade ;  but  if  needful 

1  McCuUoch's  Dictionary,  ed.  1869;  Knight,  v.  21. 


484  ELEM»=-NTS  OF  POLITICAL  ECONOMY. 

f      J  articles  cannot  be  imported,  they  must  be  made  oi 

l^^uL^.U^  ^(j^n  at  home;  and  in  order  to  be  made  or  grown 
IfPnA.  M^  at  home;  the  makers  or  growers  must  be  encouraged. 
>^^ik/w.  The  monopoly  of  the  home  market  was  precisely 
^^^^  ^  this  encouragement ;  and  it  is  owing  to  this  single 

circumstance  that  influential  classes  in  every  mer- 
cantile community  have  supposed  themselves  bene- 
fited by  this  monopoly,  that  the  doctrine  of  Protec  • 
tion  has  lingered  so  long  in  the  general  mind.  It  is 
easy,  however,  to  see  that  this  benefit  is  in  most 
cases  wholly  imaginary;  and  that  the  high  prices 
paid  by  the  consumers  do  not,  on  the  whole, 
strengthen  the  manufacture,  as  has  been  supposed. 
If  the  government  had  gone  further,  and  given 
those  who  had  already  commenced  the  culture  of 
silk  the  monopoly  against  their  own  countrymen  as 
well  as  against  foreigners,  so  that  nobody  could 
engage  in  the  manufacture  except  those  already 
engaged  in  it,  then,  indeed,  these  would  grow  rich 
at  the  expense  of  their  countrymen.  Government 
I  r>  y  would  take  money  out  of  the  pocket  of  every  con- 
'  y  ^  sumer  of  silk,  and  put  it  into  their  pocket,  and  the 

,  ^  whole  benefit  of  the  high  prices  would  accrue  to 
"^V^^the  manufacturers  alone.  But  governments  have 
D*  ♦  rarely  gone  so  far  as  this.  They  have  excluded  for- 
eign competition,  but  not  prohibited  home  compe- 
tition ;  and  the  result  has  been,  that  the  high  duties 
which  excluded  the  foreign  goods,  and  the  conse- 
quent high  prices  of  the  domestic  product,  have 
drawn  many  men  and  much  capital  into  that  busi- 
ness, in  the  hope  of  an  extraordinary  orofit.  The 
business  has  been  artificially  stimulated,  and  capital 
has  been  thrust  into  it  which  would  not  have  gone 


ON  THE  MERCANTILE  SYSTEM.  485 

of  its  own  accord.  The  thing  has  been  overdone ; 
and  the  feverish  home  competition,  in  its  anxiety  to 
reap  monopoly  prices,  has  brought  down  prices  far 
below  the  paying  figure.  The  business  has  col- 
lapsed from  its  very  inflation ;  and  thus  alternate 
chills  and  fever  have  shaken  the  life  out  of  it. 

But  the  Mercantile  System,  and  the  restrictive 
policy  that  sprung  from  it,  obtained  universal  cur- 
rency. The  statute-books  of  every  nation  in  Europe 
are  defaced  by  the  absurdest  laws  and  regulations 
respecting  manufactures  and  commerce.  Also, 
the  artisans  in  the  cities  and  towns  were  formed 
into  guilds,  that  is,  incorporated  societies,  and  to 
each  guild  was  given  the  monopoly  of  the  market 
in  its  branch  of  industry.  No  man  could  practise 
the  art  of  a  shoemaker  in  Antwerp  or  London  with- 
out the  consent  of  the  guild  of  St.  Crispin ;  and  the 
guild  itself  determined  the  number  of  apprentices  to 
each  artisan,  the  years  he  should  serve,  the  condi- 
tions under  which  he  might  become  a  master;  in 
short,  determined  everything  respecting  the  trade  by 
constitution  and  bye -laws.  The  governments,  justly 
regarding  these  artisans  as  the  most  industrious  and 
deserving  of  their  subjects,  granted  them  many  priv- 
ileges, which,  however,  were  no  less  contrary  to 
sound  principles  than  the  rest  of  the  system.  That 
they  might  obtain  cheap  provisions,  the  export  of 
corn  was  forbidden  ;  and  thus  agriculture  was  pre- 
vented  from  selling  its  products  in  the  best  market, 
wherever  that  market  might  be  found.  That  they 
might  obtain  the  raw  materials  of  their  manufac- 
tures cheap,  the  export  of  these  was  strictly  for- 
bidden.     The  tanner  and  currier,  for  example,  must 


186  ELEMENTS  OF  POLITICAL  ECONOMY. 

sell  his  product  to  the   ''gentle  Craft  of  Leather/' 
and  had  no  other  market. 

The  general  doctrine  of  fostering  exportation  was 
infringed  on  in  these  instances,  because  it  was 
thought  that  there  would  be  a  greater  ultimate  ex- 
port of  manufactured  products,  if  the  raw  materials 
of  these  were  forbidden  to  be  exported,  and  cheap 
provisions  were  secured  to  the  artisans. 

In  order  to  encourage  agriculture,  most  Europaan 
countries,  in  accordance  with  the  doctrines  of  the 
Mercantile  System,  passed  corn-laws  forbidding  the 
importation  of  foreign  grain,  each  nation  wishing  to 
raise  its  own  subsistence  from  its  own  soil.  The 
consequence  of  this  was  that  the  landholders  secured 
^  the  monopoly  of  supplying  the   home  market  with 

''^^  -dc/w^^    ^^^^  5  which  of  course  greatly  enhanced  the  price  to 
^^UtAr'f  ^^^  consumers,  especially  in  times  of  scarcity.     The 
increased  price  of  bread,  which  rich  and  poor  n>ust 
pay  alike,  was  but  a  part  of  the  evil  consequences. 
No  nation  is  so  sure  of  its  subsistence,  when  it  en- 
deavors to  raise  the  whole  of  that  subsistence  at 
home,  as  when  it  leaves  the  channels  of  importation 
open  for  foreign  supplies.     When  the  trade  in  corn 
IS  free,  the  dearth  in   one  country  is  instantly  sup- 
phed  by  the  superabundance   of  another,  and  that 
by  natural  laws  as  beautiful  and  invariable  in  their 
operation   as  the    laws    that    govern   the    heavenly 
bodies.     Interference  with  natural  law  in  no  direc- 
tion 18  so  mischievous  and  culpable  as  in  this.     Is  ii 
not  plain  to  common  sense  that  that  nation  is  most 
hkely  to  obtain  its  food  with  regularity  and  in  plenty 
which  draws  its  supplies  from  the  widest  surface? 
Massachusetts,  for  example,  does  not  begin  to  feed 


ON   THE    MERCANTILE  SYSTEM.  487 

her  own  population ;  but  does  any  one  suppose  hei 
people  are  anymore  likely  to  starve  on  that  account? 
She  can  buy  food  with  the  products  of  her  industry. 
Her  calicoes  and  cassi meres,  her  hardware  and  cut- 
lery^ her  nick-nacks  and  notions,  will  buy  wheat  not 
only  in  the  marts  of  the  West,  but  in  Poland  and 
Russia  as  well.  She  is  sure  to  be  fed,  because  she 
has  wherewithal  to  buy  food;  more  sure  to  be  fed 
than  if  she  compelled  the  industry  of  her  people  to 
abandon  the  more  profitable  mill-stream  and  factory, 
shop,  and  foundry,  to  extort  from  these  rocky  hill-sides 
the  reluctant  grains. 

England,  too,  in  1849,  removed  the  last  vestige  of 
corn-laws  from  her  statute-book,  and  now  imports 
flour  freely  from  the  Black  Sea  and  from  the  Baltic, 
from  France  and  from  the  United  States.  Who 
supposes  that,  if  England  did  not  raise  a  kernel  of 
wheat,  she  would  not  be  as  certain  of  her  daily 
bread  as  the  people  of  Poland  or  of  Michigan? 
But  one  may  say,  in  case  of  war,  she  had  better 
raise  her  food  at  home.  But  it  is  absurd  to  suppose 
that  any  nation  would  be  at  war  with  all  the  world 
at  once ;  and  we  may  be  assured  that  the  portion 
not  belligerent  would  be  eager  to  furnish  the  sup- 
plies. And  besides,  plenty  of  wheat  would  enter 
England  if  the  English  only  wanted  it,  though  all 
the  navies  of  the  world  should  blockade  the  fast- 
anchored  isle.  Every  creek  and  headland  would  be 
alive  with  the  silent  and  secret  but  busy  agents  of  a 
clandestine  trade. 

The  simple  consideration  that  condemns  this  sec- 
ond expedient  of  the  Mercantile  System,  namely, 
the  prohibiting  the   importation   of  such   commod- 


i88  ELEMENTS  OF  POLITICAL  ECONOMY. 

^<|tAV<>^l»^V|ties  as  can  be  produced  at  home,  and  the  Protective 

g^  f/»-it •  Wa*v  policy  inseparably  connected  with  it,  is,  that  it  in» 

j^^ii^  volves  a  dead  loss  to  the  productive  powers  of  the 

r  dLyyJj^  /  world.     There  is  in  the  world  a  certain  amount  of 

[^d^^X^j^!  capital  and  a  certain  amount  of  industry.     These, 

if  left  to  their  own  keen  sense  of  interest,  will  make 

the  aggregate  amount  of  production  in  the  world  as 

great  as  that  amount  of  capital  and  industry  can 

make  it.     If,  then,  a  free  commerce  distribute  this 

aggregate  production  over  the  earth  in  accordance 

with  the  simple  law  of  supply  and  demand,  we  shall 

have  not  only  the  greatest  production,  but  the  most 

perfect  distribution. 

But  if  now  government  steps  in,  and  withdraws 
capital  and  industry  from  their  freely  chosen  posts 
of  activity,  prohibits  exchanges  that  would  otherwise 
be  made,  and  commands  commodities  to  be  manu- 
factured or  grown  in  localities  where  they  would  not 
naturally  be  manufactured  or  grown,  then  certainly 
the  aggregate  production  of  the  world  is  lessened, 
and  its  distribution  is  less  perfect. 
J        ^  (3.)    The  Mercantile  System  had  two  other  expe- 

^^xj^^^i  dients  which  were  frequently  employed  to  subserve 
^J^-^^^-*^*"^  ^  the  ends  of  its  grand  principle.  For  the  sake  of 
U7V4^.S^>C:.increiftsing  the  exports,  and  thus  improving  the  bal- 
ance of  trade,  bounties  were  given  to  encourage 
the  export  and  sale  of  native  fabrics  in  foreign 
markets.  A  bounty,  we  understand,  is  a  sum  of 
money  paid  outright  by  the  government  to  the  ex- 
porters of  native  fabrics,  in  order  to  enable  them 
to  sell  their  goods  as  cheap  or  cheaper  than  their 
rivals  in  the  foreign  market.  England,  for  example, 
was  so  anxious  to  sell  her  goods  to  foreigners,  that 


ON   THE  MERCANTILE  SYSTEM.  489 

she  regularly  paid  her  merchants  for  selling  the 
goods  at  a  loss.  "  The  price  of  these  goods  in  that 
market,"  says  the  merchant,  "will  not  reward  my 
capital  with  the  ordinary  profit."  "  Never  mind," 
says  England,  "  sell  away,  and  I  will  make  up  your 
loss  by  a  bounty!"  Was  not  that  a  rare  and  brill- 
iant way  of  enriching  the  country?  By  natural 
laws,  a  branch  of  industry  ceases  as  soon  as  it  be- 
comes unprofitable ;  but  by  the  system  of  bounties 
a  trade  was  perpetuated  of  which  the  expense  was 
greater  than  the  returns,  of  which  every  operation  de- 
stroyed a  portion  of  the  capital  employed  in  it.  The 
loss  was  made  up  to  the  operators  by  government; 
in  other  words,  the  people  were  taxed  to  pay  it. 

(4.)    The  fourth  and  last  expedient  of  the  Mer-  fi^Uj  i 
cantile  System  was  to  help  the  balance  of  trade  by  i^^   ^^^^ 
founding  colonies,  that  the   mother  country  might/        ^ 
enjoy  the  monopoly  of  their  trade,  and  force  them  */ 
to  resort  exclusively  to  her  markets.    All  the  EnglishpN^*^ 
colonies  on  this  continent  were  bound  by  the  ngidtUlrpiyi^^ 
fetters  of  this  colonial  system.     Up  to  the  date  of 
American    Independence,   Virginia  and    Massachu- 
setts must  buy  most  they  wished  to  buy  in  English 
markets,  and  carry  most  they  had  to  sell  to  English 
ports.      Spain  and  France  extended  the  same  co- 
lonial monopoly,  with  even  more  of  inflexibility,  over 
their  American  and  West  India  settlements ;  and  it 
was   considerations   growing    out   of   this   colonial 
policy  which  gave  birth  to  the   American  Revolu- 
tion; and  that  war  was  waged  not  more  for  the 
interests  of  humanity  than  for  the  freedom  of  trade. 


490  ELEMENTS  OF  POLITICAL   ECONOMY 


CHAPTER  XV. 

ON  AMERICAN  TARIFFS. 

So  long  as  the  United  States  were  colonies  of 
Great  Britain,  their  commerce  was  bound  in  the  rigid 
fetters  of  the  Mercantile  System.  We  have  already- 
Been  in  the  last  chapter  that  colonies  were  one  of  the 
devices  of  the  Mercantile  System  to  secure  a  favor- 
able "  balance  of  trade."  If  the  maxim  be  to  sell  as 
much  as  possible  and  buy  as  little  as  possible,  then 
colonies,  which  could  be  compelled  to  receive  the 
goods  of  the  mother  country,  must  be  commercially 
valuable.  Accordingly,  all  the  commercial  countries 
of  Europe,  and  particularly  Spain  and  England, 
adopted  a  colonial  policy  that  sprung  directly  from 
this  fundamental  maxim.  They  valued  their  colonies 
as  affording  broad  markets  for  the  sale  of  products, 
and  also  because  they  could  monopolize  the  articles 
produced  by  the  colonists  themselves.  In  general, 
the  colonists  were  compelled  to  sell  all  they  had  to 
sell  to  the  mother  country,  and  to  buy  all  they  had 
to  buy  of  the  mother  country ;  .even  though  the  arti- 
cles thus  bought  were  not  the  produce  of  the  mother 
country,  but  must  first  be  imported  there  and  then 
exported  thence  to  the  colonies.  Until  the  Revolu- 
tion, a  Boston  ship,  for  example,  could  not  sail  di- 
rectly to  China  for  teas,  but  the  teas  must  first  be 


ON  AMERICAN  TARIFFS.  491 

brought  to  England   in  British    ships,  must  pay  a 
duty  there,  and  then  be  reexported  to  the  colonies. 

As  early  as  1650  this  monopoly  system  was  en- 
tered upon  by  the  then  republican  Parliament  of 
England.  The  colonies  had  already  overcome  the 
difficulties  incident  to  their  first  settlement,  had 
begun  to  increase  rapidly  in  wealth,  and  their  com- 
merce had  become  so  considerable  as  to  afford  a 
temptation  to  restrict  its  freedom  and  to  endeavor 
to  make  it  peculiarly  advantageous  to  the  mother 
country.  In  the  year  1651,  the  Republican  Parlia- ^^/^ /^ 
ment  passed  the  famous  Act  of  Navigation.  It  had, ^^^j^^.  '^ 
a  double  object,  —  to  promote  the  interests  of  English 
shipping,  and  to  strike  a  decisive  blow  at  the  carry- 
ing trade  of  the  Dutch.  It  prohibited  all  nations 
from  importing  into  England  in  their  bottoms  any 
commodity  that  was  not  the  growth  and  manufact- 
ure of  their  own  country.  In  1660,  by  a  memora- 
ble statute,  the  ordinance  was  reenacted,  with  addi- 
tional clauses,  substantially  excluding  foreign  ships 
from  American  harbors,  and  sacrificing  to  English 
monopoly  the  natural  rights  of  the  colonists. 

This  Navigation  Act  is  of  great  interest  to  Amer- 
icans, because  the  American  Revolution  grew  directly 
out  of  it.     Says  Bancroft,  "  American  Independence, 
like  the  great  rivers  of  the  country,  had  many  sources;  i  j     .   .i 
but  the  head  spring  which  colored  all  the  stream  was  *^^^'*'*^ 
the  Navigation  Act."     It  was  enacted  that  certain  ^'^' ' 
enumerated  articles,  which  included  all  the  principal 
productions  of  the  colonies,  could  not  be  exported 
directly  to   any  foreign  country,  but  must    first  be 
sent  to  Great  Britain,  and  there  unladen,  before  they 
could   be   forwarded  to  their   final  destination.     It 
amounted  to  the  same  thing  as  prohibiting  all  exports 


492  ELEMENTS  OF  POLITICAL  ECONOMY. 

except  to  the  mother  country.  The  chief  products 
of  their  industry  the  colonists  could  not  export  to 
any  place  but  Great  Britain,  not  even  to  Ireland; 
neither  sugar,  nor  tobacco,  nor  cotton,  nor  wool,  nor 
indigo,  nor  ginger,  nor  dye-woods,  nor  molasses,  nor 
rice,  nor  peltry,  nor  ore,  nor  pitch,  nor  tar,  nor  turpen- 
tine, nor  masts,  nor  yards,  nor  bowsprits,  nor  coffee, 
nor  cocoa-nuts,  nor  whale-fins,  nor  hides,  nor  ashes. 
Nor  was  this  all.  England  constituted  herself  not 
(jJ^U^,.,,  only  the  sole  market  for  American  products,  but  also 
the  sole  storehouse  for  American  supplies.  The 
colonies  must  not  only  sell  exclusively  in  British 
markets,  but  they  must  also  buy  exclusively  in  Brit- 
ish markets.  It  was  enacted,  that  "  no  commodity 
of  the  growth,  production,  or  manufacture  of  Europe, 
shall  be  imported  into  the  British  plantations,  but 
such  as  are  laden  and  put  on  board  in  England, 
Wales,  or  Berwick-upon-Tweed,  and  in  English- 
built  shipping,  whereof  the  master  and  three  fourths 
of  the  crew  are  English." 

The  preamble  to  this  statute,  which  was  supple- 
mental to  the  Navigation  Act,  is  curious,  and  assigns 
,\\f^v^<  as  the  motive  of  the  restriction,  "the  maintaining  a 
m:.  \  greater  correspondence  and  kindness  between  the 
subjects  at  home  and  those  in  the  plantations ;  keep- 
ing the  colonies  in  a  firmer  dependence  on  the 
mother  country;  making  them  yet  more  beneficial 
to  it  in  the  further  employment  and  increase  of  Eng- 
lish shipping  and  in  the  vent  of  English  manufact- 
ures and  commodities ;  rendering  the  navigation  to 
them  more  safe  and  cheap;  and  making  this  kingdom 
a  staple,  not  only  of  the  commodities  of  the  planta- 
tiona,  but  also  of  the  commodities  of  other  countries 


ON  AMERICAN  TARIFFS.  493 

and  placed  for  their  supply ;  it  being  the  usage  of 
other  nations  to  keep  their  plantation-trade  exclu- 
sively to  themselves." 

In  close  connection  with  these  commercial  restric-^^  VK  / 

tions,  it  was  a  leading  point  in  the  colonial  policy  to     jf 

discourage  all  attempts  of  the  colonists  to  manufact-^^^*'''^^"  ^ 
ure  for  themselves.     "  That  the  country  which  was^"^  U/>^ 
the  home  of  the  beaver  might  not  manufacture  its  >>,^Ay  '' 
own  hats,  no  man  in  the  colonies  could  be  a  hatter 
or  a  journeyman  at  that  trade,  unless  he  had  served 
an  apprenticeship  of  seven  years.     No  hatter  might 
employ  more  than  two  apprentices.     No  American 
hat  might  be  sent  from  one  plantation  to  another. 
America  abounded  in  iron  ores  of  the  best  quality, 
as  well  as  in  wood  and  coal ;  slitting-mills,  steel- 
furnaces,   and   plating-forges,   to  work  with    a   tilt- 
hammer,    were    prohibited  in   the    colonies   as  nui- 
sances."    Similar  restrictions   existed  in  respect  to 
wool  and  weaving;  no  wool,  or  any  manufacture  of 
it,  could  be  carried  across  the  line  of  one  province  to 
another ;   and  a  British  sailor,  wanting  clothes  in  a 
colonial   harbor,  was  forbidden    to  buy  there  more   ^ 
than  forty  shillings'  worth.    The  liberty  of  free  traffic      /"^"^ 
between   the    northern   and    southern   colonies  was*^''^''     *y 
grudged  to  the  colonists ;    and  any  of  the  enumer-  ^<^'^<-^'- 
ated   articles  exported  from  one  colony  to  another,  <-^*-"">*'t^  ^ » 
were  subjected  to  a  duty  equivalent  to  the  duty  on 
the  consumption  of  the  commodities  in  England.  • 

So  fully  were  British  statesmen  trammelled  by  the 
ideas  of  this  colonial  system,  that  Lord  Chatham 
himself,  the  best  friend  the  colonies  had  in  England, 
did  not  hesitate  to  say  from  his  place  in  Parliament, 
that  in  a  certain  probable  contingency,  he  would  pro- 


494  ELEMENTS  OF  POLITICAL  ECONOMY. 

hibit  the  colonists  from  manufacturing  wven  a  hob- 
nail or  a  horseshoe.     And  Lord  Sheffield,  at  a  later 
period,  said,  *'  The  only  use  of  American  colonies  is 
the  monopoly  of  their  consumption,  and  the  carriage 
of  their  produce." 
^(,L^    ^^,^_.    From   this  degrading   commercial  vassalage   the 
\    >  ^,      Revolution  set  us  free.     One  will  have  observed  that 
the  economical  consideration  that  condemns  the  co- 
lonial policy  is,  that  it  violates  this  sound  commer- 
cial doctrine,  namely,  that  men  should  buy  in  the 
cheapest  market   and  sell  in  the   dearest,  wherever 
those  markets  are  to  be  found.    If  the  mother  country 
finds  it  necessary  to  employ  prohibitions  to  draw  the 
colony-trade  to  herself,  it  proves  that  that  trade,  if 
left  to  itself,  would  have  found  other  and  more  prof- 
tiMt^**^  liable  channels.     If  Great  Britain   could  have   fur- 
Stu^       nished  us  with  all  commodities  as  cheaply  as  we 
l\/\    could    procure  them  elsewhere,  then  there  was   no 
need  of  prohibitions  and  penalties  —  we  should  have 
gone  to  her  of  our  own  accord,  as  unerringly  as  the 
needle  points  to  the  pole.     If  she  could  not  furnish 
us  as  cheaply  as  others,  we  were  wronged — it  was  a 
tribute  and  a  tax.     She  made  us  buy  in  a  dearer 
market,  when  a  cheaper  one  was  open. 

So,  if  she  could  pay  "as  much  for  our  commodities 
as  we  could  get  for  them  elsewhere,  there  was  no 
need  of  compelling  us  to  sell  to  her ;  we  should,  in 
that  case,  sell  to  her  inevitably.  If  she  would  not 
give  what  we  could  get  elsewhere,  then  we  were 
wronged ;  she  made  us  sell  in  a'  cheaper  market, 
when  a  dearer  one  was  open.  Her  prohibitions  then 
were  either  needless,  or  they  were  pernicious. 

But  it  may  be  said  that  our  loss  was  her  gain 


ON  AMERICAN  TARIFFS.  495 

that  what  we  paid  extra  as  consumers,  was  to  them 
extra  profit  as  manufacturers  and  merchants.  But 
where  is  the  justice  of  taxing  one  set  of  subjects  or 
citizens  for  the  benefit  of  another  set  of  subjects  or 
citizens  ?  And  how  is  the  wealth  of  the  whole  to  be 
promoted  by  a  transfer  of  gains  from  one  part  to 
another  part? 

A  deeper  consideration  condemns  the  colonial 
policy.  Every  country  has  certain  advantages, 
which,  if  properly  improved,  enable  that  country  to 
defy  the  competition  of  the  world  in  certain  branches 
of  industry.  If  England  could  not  sell  as  cheaply 
as  others  in  the  colonial  ports,  then  she  was  eauploy- 
ing  her  capital  and  labor  at  home  less  profitably  than 
she  might  have  employed  them ;  for  if  she  had  em- 
ployed them  upon  those  branches  of  production  for 
which  she  had  natural  and  acquired  advantages,  no 
nation  could  have  undersold  her ;  and  therefore,  if  a 
forced  market  in  the  colonies  encouraged  her  to  con- 
tinue branches  of  industry  that  would  otherwise  have 
been  abandoned,  it  was  a  permanent  loss  to  her  own  ,  , 
productive  power.  ^^ 

I  do  not   believe   that  colonial    monopolies  ever  '^^H^u.,^^ 
enriched  a  mother  country,  on  the  whole.    So  perfect ,.tz^  e^o^ 
and  compensating  are  economic  laws,  that  the  losses  ./r^    uj^jum 
of  one  country  can  never  contribute  to  the  permanent  en  ,^  9«c#^ 
gains  of  another.    The  highest  commercial  prosperity  ^^t^,^^-^ 
of  one  country  implies  and  demands  a  corresponding 
prosperity   in    other   countries.      Commerce    is    ex- 
change.    The  richer  your  neighbors  are  in  all  prod- 
ucts, the  richer  you  will  become  by  your  dealings 
with  them.      England's  hereditary  jealousy  of  the 
prosperity  of  France  has  been  as  economically  fool- 


496  ELEMENTS  OF  POLITICAL  ECONOMY. 

ish  as  it  has  been  bitter  and  persistent.  It  is  true  of 
the  family  of  Commerce,  as  it  is  of  the  family  of 
Christ,  "If  one  member  suffer,  all  the  members  suffer 
with  it." 

A  good  commercial  system  was  not  one  of  the 
immediate  fruits  of  the  American  Revolution.  The 
first  government  established  in  this  country,  the  gov- 
ernment of  the  Confederation,  which  lasted  from 
1781  to  1789,  was  not  gifted  by  the  people  with  the 
power  "  to  regulate  commerce."  This  was  one  of 
the  reserved  rights  of  the  States,  which  immediately 
cr>  began  to  use  it  in  accordance  with  their  own  views 
of  their  own  interests.  Each  State  laid  its  own 
tariff,  and  undertook  to  regulate  its  own  trade.  The 
results  were  most  disastrous.  Great  Britain,  seeing 
that,  as  a  nation,  we  were  helpless  commercially, 
not  only  refused  to  negotiate  a  commercial  treaty 
with  us,  but  by  an  Order  in  Council,  peremptorily 
excluded  our  ships  from  her  West  India  possessions, 
between  which  and  the  United  States  there  had 
grown  up,  partly  through  some  relaxations  in  the 
Act  of  Navigation,  and  partly  in  violation  of  that 
Act,  a  large  and  most  profitable  trade.  We  were  in 
no  position  to  retaliate.  As  a  nation,  we  had  no 
power  to  exclude  her  ships,  and  thus  force  her  to  a 
position  of  reciprocity.  The  States  passed  various 
and  conflicting  laws.  If  Massachusetts,  for  example, 
laid  a  duty  on  certain  goods,  and  Rhode  Island  did 
not,  very  little  revenue  would  Massachusetts  draw 
from  that  source;  the  goods  were  imported  into 
Rhode  Island,  and  then  smuggled  across  the  border. 
Thirteen  independent  States  regulating  the  com- 
merce of  our  seaboard,  induced  endless  confusion,  and 


ON  AMERICAN  TARIFFS.  497 

there  was  no  power  to  remedy  it.     Our  commerce, 
such  as  it  was,  was  ruined. 

To  consult  upon  a  remedy  for  this  state  of  things 
was  the  specific  purpose  of  the  meeting  at  Annapo- 
lis, in  1786.     Alexander  Hamilton  was  there  as  a  fi^^ji^^^jhh 
delegate  from  New  York.     He  persuaded  the  ^^^'^^Lji^     / 
gates  to  decline  entering  upon  the  subject  of  com-?     f^ »  j 
merce,   inasmuch    as   it  was  connected  with  other  ^^^'''^ - 
great  defects  of  the   Confederation,  to  which  their       '/»»• 
powers  did  not  reach ;  and  drew  up  an  Address  to 
Congress   to   call   another  Convention,  with  ample    \  ^      b 
powers  to  go  over  the  whole  ground,  and  to  devise  a  ^^ 
system  adequate  to  the  exigences  of  the  country. 

Thus  was  summoned  the  Federal  Convention  of 
1787,  which  framed  the  Constitution  under  which  we 
live,  and  which  gave  to  Congress,  that  is,  the  nation, 
the  needful  power  "to  regulate  commerce." 

The   new  House   of  Representatives,   under   the 
Constitution,  commenced   at  once   to  discuss  and 
frame  a  uniform  national  tariff.     It  passed  in  1789 ; 
and,  with  some  modifications  and  additions  passed 
in  subsequent  years,  constituted  what  I  shall  call,  for^iX^^  Vj 
convenience,  the  Hamilton  tariff.     I  name  it  so,  be-  -^ -.qv      I 
cause  Hamilton,  as  Secretary  of  the  Treasury,  made^         ,  ^.^ 
an  elaborate  Report  to  Congress  on  the  subject,  and  t^J^^TTT,*^* 
the  tariff,  as  finally  adjusted,  bore  in  almost  every  *^^^  |n  • 
part  the  impress  of  his  moulding  hand.     This  tariff 
lasted  for  twenty-five  years.     It  was  very  successful. 
It  admitted  the  principle  of  protection,  indeed,  but 
mainly  ac  subordinate  to  revenue,  and  rarely  for  itsA    \Vl 
own  sake,  and  the  general  rate  of  duties  laid  wasvV^*^'^^'^^ 
very  low.    For  instance,  in  the  original  bill  as  passed,  ^ 
cotton  goods  were  charged  5  per  cent.,  iron  goods 


498  ELEMENTS  OF  POLITICAL  ECONOMY. 

7A  per  cent.,  and  woollens  5  per  cent.     These  du- 
ties were  afterwards  somewhat,  but  not  largely,  in- 
creased.^    Pig  iron  bore  no  duty  at  all. 
y  f    .  Now  under  this  low  tariff  the  revenue  steadly  in- 

rjp-*'^^^^'^     creased,  year  by  year.     There  was  almost  no  fluctua- 
(Vi^^  ^^^^'^tion,  but  a  steady   annual  growth   of  income  from 
■"  1790  to  1808,  when  the  Embargo  was  laid,  which,  of 

pourse,  interrupted  everything.  During  these  eighteen 
years,  the  revenue  gradually  rose  from  $4,000,000  in 
1791  to  over  $16,000,000  in  1808 ;  and,  what  is  of 
greater  consequence,  the  ratio  of  income  to  popula- 
tion is  still  more  striking.  The  revenue  began  at  the 
rate  of  about  $1,000,000  to  1,000,000  of  people,  and 
steadily  rose  during  the  eighteen  years  to  about 
$2,500,000  to  1,000,000  of  people. 

If  now  we  compare  these  eighteen  years  of  a  low 
revenue  tariff  with  any  eighteen  years  in  our  after 
,         ,  '  history  when  we  have  had  an  avowedly  protective 
t        system,  we  shall  see  that  in  the  point  of  steadiness, 
WoT^"^  especially  in  the  point  of  a  steady  increase,  those 
'^^  .      r  eighteen   years  cannot  be    matched.      They  cannot 
^  (Uy»>  be  matched  even   by  a  comparison  with  the  years 
^  9  1846-61,  during  which  we   had    ostensibly  revenue 

tariffs;  because  although  these  fifteen  years  present 
fewer  fluctuations  than  any  fifteen  years  after  the 
first,  they  were  undoubtedly  less  steady  in  increased 
revenue  on  account  of  a  scale  of  duties  too  high  to 
be  most  productive,  and  also  on  account  of  the  in- 
crease of  the  free  list  in  1857.  Still,  a  fair  compari- 
son of  those  eighteen  years,  and  these  fifteen  years, 
with  the  years  intervening,  and  with  the  years  subse- 
quent to  1861,  will  yield  all  that  is  claimed  in  respect 

1  Hildreth's  United  States. 


'-a 


ON  AMERICAN  TARIFFS.  499 

to  the  superiority  of  low  revenue  over  protective 
tariffs  in  point  of  a  steady  and  increasing  customs' 
income.     Till  1808  duties  averaged  11^  per  cent.       'vU  ^^V^^^ 

But  while  I  praise  the  Hamilton  tariff,  in  compar-      /    i  <^ 
ison  with  those  that  came  after  it,  I  do  not  forget '     > 
its  defects.     It  borrowed   from  the    old  Navigation  ^'*''';^^^  ^ 
Act  of  England,  and  made  unwise  discriminations  6*«'»t^*^.^.*v. 
between  foreign  bottoms  and  American  ships.     Du-'Ji^Tit  i^*"^ 
ties  were  10  per  cent,  higher  on  goods  imported  ^^Qi^^^JLji^' 
foreign   ships.     Tonnage    was  6   cents   per  ton  on 
American  ships ;  30  cents  per  ton  on  ships  Ameri- 
can-built but  owned  by  foreigners;  and  50  cents  per  A  /  ^     J 
ton  on  all  others.     These  discriminations  were  de-  ^\f 
signed  to  encourage  the  building  of  American  ships,   fO-^^   • 
an^J  to  keep  the  carrying  trade  both  coastwise  and 
oceanwise  to  American  bottoms.     But  it  cannot  be 
wise  to  put  obstacles  in  the  way  of  foreigners  coming 
to  our  ports  to  trade.    Neither  do  sound  principles  ap- 
prove even  the  moderate  margin  yielded  in  this  tariff 
to  protection.    The  duties  indeed  were  low,  —  they 
were  scarcely  a  burden  upon  industry,  —  but  neither 
on  the  other  hand  did  they  aid  it.    All  above  the  best 
revenue  figure  was  needless.    If,  with  the  great  advan- 
tage of*  being  able  to  escape  the  costs  of  transporta- 
tion, together  with  the  abundance  of  raw  material, 
and  the  endless  resources  of  agriculture,  any  branch 
of  industry  could  not  live  wdthout  artificial  help,  then 
the  proof  is  complete  that  it  ought  not  to  have  been 
entered  upon,  and  could  not  have  been  prosecuted, 
except  at  a  permanent  loss. 

Our  second  tariff,  passed  in  1816,  I  shall  designate/!^  .C;,^^^^ 
as  the  Calhoun  tariff.  Then  first  we  entered  upon  c^  , ,  fi>j 
the  protective  system  as  such;  and  it  is  a  curious  f.     '  *' \  "■ 


500  ELEMENTS  OF  POLITICAL  ECONOMY. 

instance  of  how  times  change  and  men  change  with 
them,  that  Mr.  Calhoun,  who  afterwards  became  the 
champion  of  Free  Trade,  strenuously  advocated  this 
tariff,  while  Mr.  Webster  as  strenuously  opposed  it 
Till  then  the  tariff  question  formed  no  element  in 
our  politics ;  if  I  may  say  so,  nobody  knew  that  we 
had  any  tariff  unless  he  chanced  to  read  the  statute- 
book  ;  and  it  was  an  evil  day  for  this  country  when 
a  purely  scientific  question  became  mixed  up  in 
passions  and  politics,  and  adhesion,  on  one  side  or 
the  other,  to  what  not  one  voter  in  a  thousand  ever 
began  to  comprehend,  was  made  a  test  of  party 
From  that  day  to  this,  no  tariff  question  has  ever 
been  decided  on  its  merits.  Interests,  sections, 
passions,  have  influenced  every  bill ;  and  it  is  a  part 
of  the  punishment,  I  believe,  for  prosecuting  an  arti- 
ficial and  false  system  in  any  department,  that  it  is 
hard  work  to  get  out  of  it  New  England  generally 
Htvytt .  r^^.^  opposed  the  Calhoun  tariff,  and  the  principle  of  pro- 
1^^^  2^ '  tection  embodied  in  it;  so  did  a  majority  of  the 
rvT  I  Southern  members;  but  South  Carolina,  seeing  the 

xLfiL^^       growing  value  of  cotton,  and  anxious  for  a  home 
^U'  market  for  the  raw  material,  united  with  Pennsyl- 

vania and  the   Middle  States  in  securing  the  high 
duties,  especially  upon  cottons  and  iron.    The  duties 
were  increased,  on  an  average,  42  per  cent,  above 
the  old  rates  preceding  the  war.     Imported  articles 
1    '    l'^^^^  were  divided  into  three  classes  :  1st,  Those  of  which 
a  full   domestic    supply    could    be    produced  ;    2d, 
/"^  W     Those  of  which  only  a  partial  domestic  supply  could 
^t^^^rJ   .     be   afforded;    and    3d,    Those    produced    at    home 
very  slightly,  or  not  at  all.     On  the  first  class,  the 
duties  were  fixed  substantially  at  35    per   cent  ad 


ON  AMERICAN  TARIFFS.  501 

valorem.  On  the  second  class,  including  cottons  and 
woollens,  the  duties  were  25  per  cent.,  to  be  reduced 
after  three  years  to  20  per  cent.  On  the  third  class 
the  rates  were  mostly  fixed  with  a  view  to  revenue 
only.     Pig  iron  was  now  taxed  $9  per  ton. 

In  connection  with  the  tariff,  we  copied  again,  and  ^^    , 
more  largely,  from  the  English  Navigation  Act.    Im-  O^-'VKi^-^  4 
portations  by  foreign  ships  were  limited  to  the  prod-^/K*  ^c^ , 
uce  of  their  respective  countries ;  and  the  coasting- 
trade,  hitherto  open  to  foreign  vessels,  was  now  re- 
stricted to  those  American  owned  and  built.     In  one 
word,  we  entered  fairly  and  squarely  upon  the  career 
of  restriction.    Average  duties  1816-24,  24i  per  cent.  <24M->^«»^ 

Our  third  tariff,  that  of  1824,  we  may  call,  if  we^^**^*^  t^n 
please,  the    Clay  tariff.      That   gentleman,   though  f  VXV  -  ^i 
Speaker  of  the  House  at  the  time,  took  an  earnest /-v^       ,^^ 
part  in  the  debates,  and  was  regarded   as   the  most  ^'W*^  ^-^^ 
prominent  advocate  of  what  then  first  began  to  be 
called  the  "  American  System,"  that  is,  the  system  ^^^^^^^  ^^^ 
of  high  protective  duties.     Mr.  Webster  still  opposed 
this  system,  made  an  elaborate  speech  in  reply  to 
Mr.  Clay,  and  voted  against  the  bill. 

The  bill  increased  the  duties  on  protected  articles 
very  considerably ;    and  is  an  excellent  proof  that 
interests  that  are  petted,  and  legislatively  protected,  ^^ph^^ 
do  not  long  remain  satisfied  with  what  they  receive,     MT  ^ 
but   are  soon  clamorous  for  more  protection.     The    ^         * 
Calhoun  tariff  gave  these  interests  large  protection  ; 
eight  years  run  on,  and  they  call  for  more ;  they  get 
it.     Are  they  satisfied  ?     Why  should  they  be  ?     In- 
stead of  being  taught  to  rely  upon  themselves,  they 
have   been   taught   to   lean   upon   the   government. 
The  average  of  duties  1824-28  was  32^  per  cent,       /^2^^2v  3 


502  ELEMENTS  OF  POLITICAL  ECONOMY. 

Four  years  after  the  Clay  tariff,  that  is  in  1828,  was 
passed  the  "  Tariff  of  Abominations,''  so  called,  in 
the  politics  of  the  time.  The  manufacturers  of 
iH*-*^  <5L  course  had  asked  for  more  protection  ;  but  the  oppo- 
^^.^.^^^^^j  sition  to  the  system  was  now  strong;  it  could  not 
prevent  the  passage  of  the  bill,  but  it  loaded  it  down 
with  all  manner  of  objectionable  features,  to  make  it 
as  distasteful  as  possible  to  its  advocates.  A  political 
design  to  make  the  protective  system  unpopular 
appeared,  and  was  indeed  avowed ;  but  the  friends 
of  protection,  in  view  of  the  higher  duties  on  many 
articles,  came  to  the  conclusion  to  support  the  bill 
notwithstanding  its  odious  features.  They  swal- 
lowed the  whole  with  the  best  grace  they  could. 
Daniel  Webster,  after  strenuous  but  fruitless  efforts 
to  reduce  its  "  abominations,"  for  the  first  time  in  his 
life  voted  for  a  bill  involving  the  principle  of  high  pro- 
tective duties.  In  1828-32,  duties  averaged  36^  per 
cent.,  and  on  dutiable  goods  only,  43^  per  cent. 
Four  years  later  Mr.  Clay  went  into  the  Presi- 
Uu^t*^^^{^'  dential  canvass  against  General  Jackson  upon  the 
avowed  platform  of  protective  duties.  He  was 
eaten.  The  country  seemed  to  indicate  its  prefer- 
ence for  another  system ;  and  accordingly  in  1833  our 
fifth  tariff,  called  the  "  Compromise  tariff,"  became 
a  law.  It  adopted  a  sliding  scale  in  reference  to  all 
duties  that  were  over  20  per  cent.,  providing  for  their 
gradual  reduction  on  each  alternate  year,  till  1842, 
when  and  thereafter  the  uniform  rate  on  all  these 
goods  should  be  20  per  cent,  on  the  home  valuation, 
\  Mr.  Clay  himself  brought  forward  this  bill  as  a  "  com- 
promise ;"  and  it  was  also  approved  by  Mr.  Calhoun. 
Average  duties  1833-42, 16  per  cent.,  on  dutiable  32. 


ON  AMERICAN  TARIFFS.  503 

During  the  next  nine  years  the   attention  of  the 
country  was  occupied  by  the  great  questions  of  a 
National  Bank  and  the  currency.    On  these  and  other 
questions  the  administration  of  Yan  Buren  became 
unpopular  and  broke  down;    and  the  Whig  party,     , 
coming   into    power,  passed  what  I   shall   call   the 'j^^i*-^ '^^ 
"  Whig  tariff"  of  1842.     It  was  a  high  protective ^^^^Jt^tfr^ 
tariff.     Extravagant  expectations  were  entertained  in  ^ 

regard  to  it  in  the  high  political  excitements  of  the  ^\\tAAA^^ 
time.  Under  it,  millions  of  capital  were  seduced  into 
manufactures,  particularly  of  iron ;  and  when  the  high 
duties  were  abolished,  as  they  were  a  few  years  later, 
hundreds  and  thousands  of  persons  were  pecuniarily 
ruined.  It  is  impossible  to  speak  in  terms  sufficiently 
deprecatory  of  an  artificial  system  that  inveigles 
capital  and  laborers  into  branches  of  industry  in 
which  they  never  would  have  embarked  of  their  own 
accord.  Our  whole  course  of  legislation  on  this  sub- 
ject cannot  be  properly  characterized  in  terms  of 
respect.  Congress  has  alternately  inflated,  and  then 
punctured,  the  bubble.  The  average  annual  duties 
between  1842  and  1846  on  the  aggregate  of  imports 
was  22|  per  cent.,  and  the  average  on  the  dutiable 
goods  alone,  32^  per  cent.  These  averages  are  all 
carefully  calculated  from  the  official  table  presented 
in  Mr.  Commissioner  Wells'  Annual  Report  of  1869. 

In  1846  was  passed  what  we  will  call  the  "  Walker  ^/^^^/J)^ 
tariff*,''  from  Robert  J.  Walker,  then  Secretary  of  *he-f^^^/^  ' 
Treasury.  It  reduced  the  duties  on  imports  down  to  ^^"^P 
about  the  standard  of  the  "  Compromise  "  of  1833.  i 
It  discriminated  however,  as  the  Compromise  did  not,  C^Uv-^^U 
between  goods  that  could  be  produced  at  home  and  67-  75tw  ? 
those  that  could  not.     It  approached,  in  short,  more 


504  ELEMENTS  OF  POLITICAL  ECONOMY. 

nearly  than  any  other,  in  its  principles  and  details,  to 
the    Hamilton   tariff,  although   the   general  rate   of 
duties  was  higher.    From  that  time  up  to  1857,  there 
L,  was  a  regular  and  large  increase  in  the  amount  of 

fr^^  r    dutiable  goods  imported,  bringing  in  a  larger  revenue 
r^  /i^^^to   the   government.     The    surplus   in  the   treasury 
^ijr^^       accumulated,  and  large  sums  were  expended  by  the 
^^*^}^'      government  in  buying  up  its  own  bonds  at  a  high 
,4,^,^^^^,^^^       premium,  for  the   sake   of    emptying   the  treasury. 
Under  these  circumstances  the  "tariff  of  1857"  was 
passed,  decidedly  lowering  the  rates  of  duties,  and 
yvJtCtZ^^^^^    largely  increasing  the  free  list.     The  financial  crisis 
jiLrt^^^l  of  that  year  diminished  the  imports,  and   the  reve- 
,V>^?        nue  fell  off  $22,000,000.     Duties  on  the  whole  im- 
ports for  the  fifteen  years  1846-61  averaged  17f  per 
cent.,  and  on  those  goods  subjected  to  duty  averaged 
22|  per  cent. 

It  only  remains  to  speak  of  the  "  Morrill  tariff" 
of  1861.  I  include  under  that  designation,  as  pre- 
viously under  the  designation  of  the  Hamilton  tariff, 
the  various  supplements  and  modifications  passed  in 
accordance  with  the  leading  idea  of  the  original  act. 
^^^^C^vvwv^  So  reckoned,  the  Morrill  tariff  is  the  ninth  in  order. 
l4-^>^,^J*^  djj  The  difficulties  growing  out  of  the  war  ostensibly 
'1/..  ,«wj  united  all  parties  in  the  view  of  obtaining,  if  possi- 
ble, more  revenue  to  the  government ;  but  there  was 
no  agreement  as  to  the  means  by  which  more  rev- 
enue could  be  obtained ;  and  the  protectionists  in 
Congress  seized  the  opportunity  of  the  withdraw- 
ment  of  the  Southern  members  for  discriminating  in 
favor  of  the  articles  in  which  they  were  interested 
even  to  the  extent  of  diminishing  the  revenue  by 
very  high  duties  which  lessened  importations.  They 
did  this  too  without  any  general  popular  call  for  such 


ON  AMERICAN   TARIFFS.  505 

a  step.  The  people  had  deliberately  and  repeatedly 
indicated  their  preference  for  the  system  of  low  du- 
ties. The  policy  of  the  country  was  supposed  to  be 
settled  in  that  direction.  There  was  indeed  a  mildly 
drawn  resolution  in  the  political  platform  of  the  party 
that  triumphed  in  1860  in  favor  of  what  is  called  pro- 
tection ;  but  very  little,  or  nothing,  was  said  upon 
that  subject  in  the  canvass ;  the  people  pronounced 
in  their  verdict  upon  a  totally  different  set  of  ques- 
tions from  those  involved  in  a  protective  tariff. 
When,  therefore,  the  congressional  protectionists, 
availing  themselves  of  the  absorption  of  the  popular 
mind  in  the  war  questions,  availing  themselves  also 
of  the  indignation  against  England  on  account  of 
the  supposed  haste  with  which  she  had  recognized 
the  insurgents  as  belligerents,  sprung  a  highly  re- 
strictive tariff  upon  the  country,  they  did  it  in  obe- 
dience to  no  general  call,  and  with  little  reference  to 
the  general  welfare.  In  view  of  such"  a  war  as  that 
then  impending,  the  relevant  questions  were.  How 
can  we  get  the  most  revenue  with  the  least  inter- 
ference with  the  industries  of  the  people  ?  and.  How 
can  we  distribute  the  tariff-taxes  so  as  to  burden  the 
whole  people  as  equally  as  possible  ?  If  these  ques- 
tions alone  had  influenced  the  representatives  of  the 
people,  the  Morrill  tariff  would  never  have  been 
heard  of.  The  instincts  of  a  people,  on  the  breaking 
out  of  a  great  war,  are  always  favorable  to  commer-     ,  i 

cial  freedom.     On  the  6th  of  April,  1776,  the  Con-^^'^"^  ^ 
tinental  Congress  opened  the  ports  of  this  country  to  (^v^fc^vv  'L 
all  the  world  not  subject  to  the  king  of  Great  Britain.        l^~i  fc^ 
They  abolished  by  that  act  British  custom  houses, 
and  established  no  others  in  their  stead.     "  Absolute  Un/t^-^ 


506  ELEMENTS   OF  POLITICAL  ECONOMY. 

free  trade  took  the  place  of  hoary  restrictions;  the 
products  of  the  world  could  be  imported  from  any 
place  in  any  friendly  bottom,  and  the  products  of 
American  industry  in  like  manner  exported,  without 
a  tax."  1  Many  nations  have  acted  similarly  in 
similar  circumstances  ;  but  no  nation,  to  my  knowl- 
edge, on  the  eve  of  a  great  war,  ever  did  as  the 
United  States  did  1861,  make  it  of  set  purpose  more 
difficult  to  obtain  supplies  from  abroad,  and  more 
difficult  to  sell  abroad  the  products  of  native  indus- 
try. It  was  a  clouded  thought,  hovering  in  many 
patriotic  minds,  that  what  they  knew  would  be  im- 
mediately and  immensely  beneficial  to  some  of  their 
constituents  would  not  after  all  be  very  harmful  to 
the  country  at  large,  that  carried  through  the  tariff 
of  1861.  But  it  was  harmful  to  the  country  at 
large  in  a  high  degree.  Enlightened  public  opinion 
abroad  turned  more  or  less  against  the  country  in 
consequence  ;  the  people  were  obliged  to  pay  nearly 
or  quite  double  on  some  of  the  necessaries  of  life 
what  the  goods  were  worth  in  a  free  market ;  some 
of  them  lost  also  their  best  chance  of  selling  a  part 
of  the  products  of  their  industry  ;  unusual  inequality 
of  fortune  soon  appeared  among  the  citizens ;  while 
the  duties  were  put  so  high  that  nothing  like  the 
revenue  was  received  from  them  that  might  have 
been  received.  With  a  much  larger  revenue  in  gold, 
a  people  obtaining  their  cloths  and  iron  and  similar 
goods  at  something  near  European  or  Canadian 
prices,  and  general  industry  going  forward  under  its 
natural  conditions,  the  credit  of  the  government 
would  not  have  sunk  so  low  as  unfortunately  it  did 

1  Bancroft,  8th  voL,  p.  323. 


ON  AMERICAN   TARIFFS.  507 

sink.     The  new  tariff  was  not  honestly  adjusted  foi 
purposes  of  revenue,  and  while  it  seemed  to  concede 
something  in   its   free  list  to  the  demand  for  free 
trade,   the    concession    was   largely   delusive,   since 
many  of  the  articles  thus  admitted  free  of  duty  w^ent  Q    i       a  • 
into  manufactures  protected  by  higher  duties  than  rvti/nH^  v^ 
have   ever  before  been  levied  in  this  country.     To  ff]  Wqk'' 
put  articles  on  a  free  list  is  of  itself  no  bqon  to  free      y 
trade ;  it  depends  upon  the  purpose  for  which  they 
are  put  there ;  whether  to  benefit  the  whole  people 
or  only  a  few  persons  at  the  expense  of  the  whole 
people.     In   all  our  recent  tariff-legislation  there  is 
many  a  snare  for  the  unwary. 

The  average  range  of  duties  on  the  entire  imports 
from  1862  to  1869,  was  34|-  per  cent.,  more  than  three  (X^.i^Lju 
times  as  much  as  the  average  under  the  Hamilton  fC^^^Q^ 
tariff  when  we  were  a  young  nation  ;  and  the  aver-     ^»i.*f^^ 
age  on  dutiable  goods  during  the  same  interval  was      ^ 
41^  per  cent.,  a  higher  average  than  the  history  of 
the  country  elsewhere  presents,  except  for  the  brief 
period  covered  by  the  tariff  of  Abominations. 

The  original  tariff  of  1861  was  added  to  at  dif- 
ferent times  both  in  articles  and  in  rates,  until  on 
an  actual  count  of  them,  the  number  of  distinct 
rates  assessed  on  different  articles  was  2,317;  and 
until,  in  1868,  the  following  articles  actually  paid 
the  following  rates  of  duty  per  centum  of  the  value 
of  the  articles  :  —  common  window  glass,  49 ;  pig 
iron,  56  ;  bar  iron,  66| ;  cast  iron  pipe  and  stoves, 
109  ;  wood  screws,  66  ;  carpenter  squares,  82 ;  sheet 
.ead  and  pipe,  54 ;  lead  pencils,  59^ ;  plain  un- 
bleached cottons,  58^ ;  spool  cotton,  65^ ;  cheap 
gunny  cloth,  81^ ;  white  marble,  57 ;  veined   mar- 


508  ELEMENTS  OF  POLITICAL  ECONOMY. 

ble,  783  ;  salt  in  bags,  80f ;  salt  in  bulk,  lOSj ;  rice 
cleaned,  82^ ;  rice  uncleaned,  1 65^  ;  scoured  wool, 
94 ;  washed  wool,  121  ;  blankets,  (average  all 
kinds)  81| ;  one  kind  of  carpets,  80 ;  another  kind, 
91;  another  kind,  156^;  Paris  white,  285;  white 
chalk,  833^.1  The  average  duty  on  dutiable  goods 
.for  1868  was  47.86  per  centum. 
^  But  it  is  said  that  our  present  tariff  is  productive. 

^^■^«X<^v    Of  course,  if  the  people  trade  at  all,  such  a  tariff  will 
be  productive;  something  like  half  the  value  of  the 
dutiable  goods  imported  goes  direct  to  government ! 
To  say  that  it  is  productive  is  only  to  say  that  it  is 
hard  work  to  destroy  the  commerce  of  a  great  peo- 
ple.   The  question  is,  would  not  a  reasonable  system 
be  even  more  productive  ?     At  present,  the  govern- 
ment indeed  gets  much ;  but  the  people  pay  a  great 
deal  more ;  inasmuch  as  the  ground-thought  of  the 
whole  system  is  to  raise  the  price  of  favored  domes- 
ivtre^      tic  products  through  the  tariff-taxes  on  corresponding 
[jl^^,^^^^^^^^^       foreign  products.     Some  of  these  taxes  exclude  the 
tS^vJlV  ^<^^^^g"  product  entirely :  in  this  case,  the  people  pay 
.  much,  and  government  gets  nothing.    In  other  cases, 

"^^f^^o       the  people  are  made  to  pay  five,  and  even  ten,  times 
^^-^  as  much  in  consequence  of  a  tariff-tax  as  the  govern- 

ment receives  from  it.  Can  such  a  system  properly 
be  called  productive?  In  round  millions  of  dollars 
the  tariff  produced  in  1863  and  onwards  to  1874,  as 
follows: -^49,  69,  102,  85,  179,  176,  164,  180,  194, 
206,  216,  188,  163;  —  an  average  for  thirteen  years 
of  $151,000,000.  This  is  j^er  capita,  calling  the  pop- 
ulation 38,000,000,  $4.20.  The  annual  average  of 
British  customs  revenue  for  the  same  thirteen  years 

1  Report  U.  S.  Bureau  Statistics,  No.  29. 


ON  AMERICAN  TARIFFS.  509 

is  just  about  the  same  per  capita;  which  shows  that 
a  simple  revenue  tariff  on  17  articles,  more  or  less, 
is  as  productive  per  head  of  population  as  ours  has 
been.  Just  at  present  our  tariff  realizes  consider- 
ably more  per  capita  than  the  British  tariff  does. 

There  have  been  already  three  decided  reductions.    . 
in  the  Morrill  tariff  as  it  was.     The  first  went  into'^^^*^<^ 
effect  Jan.  1,  1871,  and  threw  off  taxes,  as  compared^U^et*-*- 
with  1869,  to  the  extent  of  $26,054,748  ;  but  it  threwT}^  V)w*^ 
them   off  mainly  from  the  revenue,  and  not  from^pt-JiAA 
the   protective,  parts  of  the  tariff:   for  example,  77  ^        ^ 
per  cent,  of  all  this  reduction  was  from  tea,  coffee,  '^  *u**M 
cocoa,  sugar,  and  molasses ;  articles,  all  the  taxes  onA***^^ 
which  go  to  government,  and  directly  raise  the  price 
of  nothing  else.     Precisely  those  articles,  therefore, 
are  the  ones  to  bear  a  heavy  tax.     Tn  that  general 
reduction  of  1871,  the  average  decrease  of  rate  on 
40  articles  was  40  per  centum ;  and  the  average  in- 
crease on  10  articles  (all  protected  articles)  was  47^ 
per  centum.     The  second  reduction  in  the  summer    /  /^  / 
of  1872  threw  off  the  duties  entirely  from  tea  and   e   J^\^ 
coffee;  and  the  third  reduction  under  a  bill  approved ^j;^;^_^^^^ 
June  6,  1872,   put   a   large    number   of  previously 
taxed  articles  upon  the  free  list,  reduced  decidedly 
the  duties  on  salt  and  pig  iron,  and  put  a  general 
reduction  of  10  per  cent,  on  most  protected  articles. 
I  find  that  there  are  502  distinct  articles  dutied  in 
the  tariff  as  it  now  stands,  and  972  different  rates 
assessed  upon  the  different  grades  of  these  articles. 

In  reference  to  our  present  tariff,  and  all  such 
tariffs,  I  wish,  in  conclusion,  to  make  a  few  general 
observations. 

1.  Such   duties  as  these,  laid  for   protection,  are /f»<<A  *c<., 
always  laid  at  the  instance,  and  under  the  pressure,  *^*^^  / 


510  ELEMENTS  OF  POLITICAL  ECONOMY. 

of  the  special  interests  protected.  No  legislator,  on 
general  principles,  and  without  solicitation  from  in- 
dividuals, ever  framed,  or  would  ever  have  thought 
of  framing,  such  a  tariff  as  ours.  This  is  true  even 
of  the  very  moderate  protection  accorded  in  the 
Hamilton  tariff.  It  is  overwhelmingly  true,  and  at 
every  point,  of  the  immoderate  protection  of  the 
Morrill  tariff.  Distinguished  members  of  the  Com- 
mittee of  Ways  and  Means  have  related  to  me  at 
length  the  methods  pursued  to  gain  the  sanction  of 
that  committee,  and  thus  the  ear  and  the  votes  of 
Congress.  Those  methods  are  scandalous.  If  they 
were  generally  understood  by  the  people,  there  would 
be  a  speedy  end  of  all  such  legislation. 

2.  A  single  specimen  of  the  inequalities  of  which 
our  present  tariff  is  full,  may  be  given  here  by  way 
of  illustration.  Ex  uno  disce  ornnes,  A  supple- 
mental act  that  went  into  operation  on  the  10th 
of  August,  1866,  provides,  for  the  sake  of  increas- 
ing the  duties,  that  the  costs  of  transportation, 
shipment,  commission,  brokerage,  and  all  similar 
charges,  be  added  to  the  invoice  value  of  imports 
to  make  up  the  value  on  which  the  duties  shall 
be  levied.  This  applies  to  all  dutiable  imports,  ex- 
cept to  long-combing-  or  carpet  wools  costing  twelve 
cents  or  less  per  pound.  Why  are  they  excepted  ? 
Cannot  the  carpet  manufacturers  pay  duties  as  well 
as  other  people  ?  They  have  a  very  high  protective 
duty  on  their  own  completed  product.  They  com- 
pel^ through  Congress,  everybody  to  pay  this  duty 
on  foreign  carpets,  and  carry  up  the  price  of  their 
own  in  proportion  ;  and  yet  this  tariff  exempts  theii 
raw  material  from  an  increase  of  duty  applied  to  all 


ON   AMERICAN   TARIFFS.  511 

other  dutiable  goods  whatsoever!  Ten  days  before 
this  clause  went  into  effect,  the  Hartford  Carpet 
Company  declared  a  semi-annual  dividend  of  20  per 
cent.  ;  and  its  shares  were  announced  as  worth  $275 
each,  with  the  dividend  off. 

3.  The  condition  of  ship-building  and  ship-owning 
in  this  country  is  the  best  practical  commentary  on 
the  influtJLce  of  protection  in  general.     The  system 

is  here  reduced  to  its  lowest  terms.  The  perfection  /^^,  /vi 
of  protection  is  prohibition.  Our  navigation  laws  ^JjjLy^ 
prohibit  the  buying  of  foreign  ships  for  the  sole  pur-  "^^ 
pose  of  encouraging  the  building  of  domestic  ships. 
Notwithstanding  their  absolute  monopoly  of  the 
market  under  this  law,  such  are  the  duties  levied  for 
protection  on  the  materials  that  go  into  ship-building, 
that  our  ship-builders  cannot  build  ships  at  a  profit. 
It  is  illegal  to  buy  them,  and  it  is  next  to  impossible 
to  build  them ;  and  consequently  our  foreign  mer- 
chant marine  has  fallen  off  about  one  half  since 
1860 ;  and  of  nearly  140  steamers  regularly  plying 
between  the  ports  of  the  United  States  and  Europe, 
hut  two,  and  these  just  constructed,  wear  the  American 
flag:  In  1860,  our  own  ships  brought  in  nearly  two 
thirds  of  our  imports ;  in  1870,  less  than  one  third. 
One  half  of  the  commerce  of  the  world  is  now  done 
on  British  ships :  only  one  fifth  on  American  ships} 
Ship-building,  mostly  for  the  coastwise  trade,  in 
which  foreigners  are  not  allowed,  has  revived  some- 
what during  the  past  two  or  three  years ;  and  two  iron 
steamships  have  been  launched  from  the  Delaware. 

4.  It  is  foolishly  claimed  by  some  that  protective 
duties  always  shortly  lower  the  prices  of  protected 

1  HunVs  Merchants''  Tear-Book  for  1870. 


512  ELEMENTS   OF  POLITICAL  ECONOMY. 

articles.  If  they  do,  where  does  the  protection  come 
in  ?  Or,  what  is  the  motive  for  levying  such  duties  ? 
Or,  why  has  the  Onondaga  Salt  Contipany  been 
selling  salt  for  years  in  Canada  at  forty  per  cent,  less 
than  in  Syracuse  itself  ?  Why  did  the  same  com- 
pany offer  salt  to  the  fishermen  duty  off,  and  only 
sell  it  to  landsmen  duty  on  ?  Is  pig-iron,  is  marble, 
is  rubber-webbing,  is  salt,  are  wood-screws,  are  car- 
penters' squares,  are  coarse  blankets,  cheaper  than  in 
1860  ?  In  a  natural  course  of  things  they  would  be 
cheaper :  according  to  the  price-lists  they  are  dearer ; 
and  it  is  an  unnatural  and  iniquitous  force  that 
makes  them  so. 

5.  The  proper  way  to  deal  with  protective  duties 

*VH>i  t^4^  is  to  abolish  them  instantaneously  and   simultane- 

'    -^  ^  .    ously.     The  abolition  of  a  tax  on  industry  can  do  no 

"^Y    o  "'     harm  to  industry.     If  every  tax  of  every  name  in  all 

I   -r'    ^  the  earth  could  be  abolished  to-morrow,  what  harm 

would  ensue  ?     Taxes  are  indeed  necessary  for  the 

support  of  government,  but  even  when  wisely  laid 

for  that  end  they  are  a  necessary  evil.     They  take 

just  so  much  out  of  what  would  otherwise  be  the 

gains  of  exchanges.     But   protective  taxes  are  the 

worst  possible  form  of  taxes,  and  the  only  thing  to 

do  with  them  is  to  abolish  them.     When  protective 

duties  become  numerous,  as  with  us,  they  become  a 

universal  burden ;  and  there  are  only  a  few  protected 

interests   themselves  which  would  not  be  instantly 

relieved  by  their  universal  abolition.     To  taper  off 

in  protection  is  much  like  a  drunkard  tapering  off  in 

his  cups.     It  would  indeed  be  unjust  to  abolish  a 

part  of  these  duties,  and  leave  the  rest  in  force  — 

to  strike  out,  for  example,  the  duty  on  woollens  and 


ON  AMERICAN  TARIFFS.  513 

leave  the  duty  on  wools,  —  they  should  all  go  by  the 
board  together.  Science  and  experience  alike  dem- 
onstrate that  this  is  the  best  way  to  do  it.  Protec- 
tion cannot  complain  of  it,  for  when  did  itself  ever 
give  previous  notice  to  the  people  that  its  taxes  were 
coming  ?  Edward  Harris  paid  $58,000  in  gold  du- 
ties on  wool  bought,  paid  for,  and  on  its  way  to  this 
country,  when  the  wool  tariff  of  1867  came  in.  If, 
however,  ignorance  and  prejudice  hedge  the  way  to 
this  simultaneous  abolition,  let  the  worst  duties  go 
first :  those  on  coal  (we  have  more  coal  in  this  coun- 
try than  all  the  world  besides),  on  pig-iron,  on  lum- 
ber, on  salt,  on  wool,  on  materials  generally. 

6.  The  changing  tone  of  New  England  on  protec- 
tion is  very  noticeable.  Many  of  her  prominent 
manufacturers  are  earnest  for  free  trade,  and  very  CjIljiZL 
few  of  the  rest  have  much  zeal  for  the  opposite./^  ••  f 
They  have  found  out  that  they  have  to  pay  more  *  '* 
protection  than  they  get.  Exclusive  protection  of 
one  interest  is  a  very  different  thing  from  general 
protection  of  many  interests.  New  England,  accord- 
ingly, is  swinging  back  to  her  old  position.  Unjust 
discriminations  in  duties  are  helping  this  forward. 
The  duty  on  coal  is  an  abomination  in  New  Eng- 
land ;  so  is  the  duty  of  about  100  per  cent,  on  fine 
wools,  while  carpet  wools  come  in  for  about  15 
per  cent.;  and  so  is  the  fact,  that  of  the  whole  cost 
of  producing  a  yard  of  the  finer  woollens  a  large 
part  has  been  paid  out  in  duties.  The  English 
manufacturer,  for  example,  is  wholly  relieved  of 
these  duties,  and  his  advantage  of  four  per  cent,  in 
labor,  if  it  exists,  is  a  mere  nothing  in  comparison 
with  his  immense  advantage  in  the  way  of  free  ma- 


514  ELEMENTS  OF  POLITICAL  ECONOMY. 

terials.  No  wonder  our  woollen  manufacturers  are 
going  forward  under  discouragement.  The  tariff  is 
their  foe,  and  they  are  becoming  a  foe  to  it.  The 
shoemakers  —  the  largest  single  interest  in  the  United 
States  next  to  the  farmers — are  indignant  at  the 
tariff  taxes  on  their  lastings,  webbings,  and  other 
materials.  Much  of  the  present  dissatisfaction  of 
labor  in  New  England  is  derivable  from  causes  which 
have  their  seat  in  the  tariff,  and  that  will  ultimately 
feel  the  force  of  their  opposition.  Moreover,  Boston 
is  anxious  to  regain  its  ocean  traffic,  and  an  obsta- 
cle to  this  is  the  tariff. 

7.  The  progress  that  public  opinion  generally 
throughout  the  country  is  making  in  this  matter  of 
duties  is  very  cheering.  Light  is  breaking  in.  The 
people  are  understanding  better  than  ever  before  the 
nature  of  these  taxes  that  are  laid,  not  to  produce 
revenue,  but  to  prevent  it.  They  are  even  asking 
whether  Congress  has  any  constitutional  right  to  lay 
taxes  for  any  other  purpose  than  to  get  money  with 
which  "  to  pay  the  debts,  and  provide  for  the  com- 
mon defence  and  general  welfare  of  th6  United 
States."  The  issue  of  present  discussions  both  on 
the  constitutionality  and  the  expediency  of  "  protec- 
tive" taxes,  is  sure  to  be  favorable  to  commercial 
freedom.  The  present  tariff  rests  on  false  principles 
throughout,  and  cannot,  therefore,  be  permanent. 
To  relax  commercial  systems,  and  not  to  restrict 
them,  is  alone  in  accordance  with  the  spirit  of  this 
age. 


ON  TAXATION.  515 


CHAPTER  XVI. 

ON  TAXATION, 

If  the  general  views  maintained  throughout  thia 
book  are  conceded  to  be  correct,  we  shall  now  reach 
with  very  little  difficulty  the  true  principles  of  taxa- 
tion. Value  resides  in  services  exchanged ;  but  gov- 
ernment is  an  essential  prerequisite  to  any  general 
and  satisfactory  exchanges,  since  it  contributes  by 
direct  effort  to  the  security  of  person  and  property ; 
and  justly  claims,  therefore,  from  each  citizen  a  com- 
pensation in  return  for  the  services  thus  rendered  to 
him.  I  do  not  mean  to  say  that  government  exists 
solely  for  the  protection  of  person  and  property,  or 
that  all  the  operations  of  government  are  to  be 
brought  down  within  the  sphere  of  exchange,  for 
government  exists  as  well  for  the  improvement  as 
for  the  protection  of  society,  and  many  of  its  high 
functions  are  moral,  to  be  performed  under  a  lofty 
sense  of  responsibility  to  God  and  to  future  ages ; 
nor  do  I  mean  to  say  that  government  has  not  also 
a  deep  ground  for  its  existence,  in  virtue  of  which 
it  may  on  extraordinary  occasions  demand  all  the; 
property  of  all,  and  even  the  lives  of  some,  of  its 
citizens ;  but  I  do  mean  to  say  that,  whatever  may 
be  conceded  as  the  ultimate  ground  of  government, 
the  matter  of  taxation,  by  which  government  is  out- 


516  ELEMENTS   OF  POLITICAL  ECONOMY. 

wardly  and  ordinarily  supported,  and  by  which  it 
takes  to  itself  a  part  of  the  gains  of  every  man's 
o^uJ  (^^t  industry,  finds  a  ready  and  solid  justification  in  the 
^  A*^A  comnrion  principles  of  exchange.  If,  as  far  as  the 
S^  ^7/U  tax-payer  is  concerned,  the  exchange  does  not  seem 
^^^j/t^  to  be  voluntary,  on  a  closer  analysis  it  is  seen  to  be 
-^^^^^^•really  voluntary;  for  in  effect  the  people  organize 
'^  government  for  themselves,  and  voluntarily  support 
it,  and  there  is  no  government  separate  from  the  will 
of  the  people.  The  practical  rules  of  taxation  at 
any  rate,  whether  the  fundamental  reasons  for  it  or 
not,  must  always  be  found  within  the  principles  of 
our  science ;  and  while  it  is  admitted  that  here  is 
another  point  of  contact  with  the  regions  beyond, 
all  that  really  belongs  to  it  must  be  vindicated  for 
Political  Economy.  In  a  very  important  sense  ac- 
cordingly, a  tax  paid  is  a  reward  for  a  service  ren- 
dered. The  service  which  government  renders  to 
production  by  its  laws,  courts,  and  officers,  by  the 
force  which  it  is  at  all  times  ready  to  exert  in  behalf 
of  any  citizen  or  the  whole  society  when  threatened 
with  evil  in  person  or  property,  is  rendered  some- 
what on  the  principle  of  division  of  labor,  one  set 
of  agents  devoting  themselves  to  that  work ;  and, 
notwithstanding  some  crying  abuses  of  authority 
which  no  constitution  or  public  virtue  have  yet  been 
found  adequate  wholly  to  avert,  is  rendered  on  the 
whole  economically  and  satisfactorily.  Taxes,  there- 
fore, demanded  of  citizens  by  a  lawful  government 
which  tolerably  performs  its  functions,  are  legitimate 
and  just  on  principles  of  exchange  alone. 

The  question  now  arises,  in  what  proportions 
ought  the  citizens  to  contribute  to  the  fund  neces- 
sary to  be  raised  by  taxation  ? 


ON   TAXATION.  517 

The  usual  answer  has  been,  that  a  man  should  be  ^hJijJL 
taxed  according  to  his  property.     But  what  is  prop-g  /        <^ 
erty?     No  word  has  received  a  greater  variety  Qf  ^^'^'^-'^Jj^^^ 
definitions,  or  is  less  settled  in  definite  meaning  in  ^^  ^^ 
the  minds  of  men.     The  lawyers  make  a  distinction  ^^^^^ 
between  real  property  and  personal  property;  and 
the  law  of  the  United  States  formerly,  and  of  Mas- 
sachusetts  now,  though   a   man   have    neither  real 
estate  nor  movables,  yet  taxes  him  on  his  income, 
on  the  rewards  of  his  daily  industry,  regarding  that 
as  a  species  of  property.     And  this  too  is  just;  be- 
cause, as  I  think,  the  ultimate  idea  of  property  is  the 
power   and   right   to   render   services   in    exchange. 
Robinson  Crusoe,  while  solitary  upon  his  island,  did 
not  and  could  not  have  property,  in  the  true  sense 
of  that  word.    It  is  not  the  fact  of  appropriation  that  ^     ■ 
makes  anything  property  ;  it  is  not  the  fact  that  a  j^  ^^'^♦^l^j; 
man  has  made  it  or  transformed  it,  that  makes  any- #''W|->-J 
thing  property ;   it  is   not  the  fact  that  a  man  may 
rightfully  give  it  away,  that  makes  anything  prop- 
erty ;  but  it  is  the  fact  that  a  man  has  something,  no 
matter  what  it  is,  for  which  something  else  may  be 
obtained  in   exchange,  that    makes  that  something 
property,  and  gives  government  the  right  to  tax  it. 
In  other  words,  property  consists  in  values,  in  a  pur- 
chasing-power, and  not  in  possession,  or  in  appropri- 
ation, or  in  the  esteem  in  which  a  man  holds  any- 
thing he  has  as  long  as  it  is  his  own.     The  test  of 
property  is  a  sale ;  that  which  will  bring  something 
when  exposed  for  exchange  is  property  ;  that  which 
will  bring  nothing,  either  never  was,  or  has  now 
ceased  to  be,  distinctively  property.     This  view  may 
not  seem  to  be  as  novel  as  it  is,  or  it  may  be  preju- 


518  ELEMENTS   OF  POLITICAL  ECONOMY. 

diced  by  its  very  novelty,  but  at  any  rate  it  carries 
along  with  it  that  strongest  of  the  criteria  of  truth, 
that  it  simplifies  and  illumines  a  confused  section  of 
fhe  field  of  human  thinking ;  and  at  the  same  time 
justifies  a  practice  which  governments  have  reached, 
as  it  were  through  instinct,  the  practice,  namely,  of 
taxing  men  who  have  neither  real  estate  nor  chattels, 
on  their  incomes  from  industry. 

To  the  general  question,  then,  in  what  proportions 
shall  the  citizens  contribute  in  taxes  to  the  support 
of  government,  the  general  answer  comes,  that  they 
ought  to  contribute  in  proportion  to  the  gains  of  their 
exchanges,  of  whatever  kind  they  may  be.  No  man 
ever  did,  no  man  ever  can,  pay  his  taxes,  gifts  aside, 
except  out  of  the  gains  of  some  exchanges  which  he 
has  actually  made ;  and  as  the  gains  are  the  only 
^ii^l^^  possible  source,  so  they  would  seem  to  be  the  best 
^Slu-.»u^^,  possible  measure,  of  his  taxes.  Even  the  man  who 
lives  on  the  interest  of  his  money  must  make  an 
exchange  in  order  to  get  his  interest,  the  wages  of 
personal  and  professional  services  are  the  result  of 
exchanges,  and  men  can  realize  nothing  from  their 
farms  or  their  foundries  except  as  they  sell  either 
them  or  their  products.  The  farm,  the  foundry,  the 
mill,  the  railroad,  the  real  estate  of  every  name  ;  per- 
sonal property  of  every  kind ;  and  personal  acquire- 
ments and  efforts  of  all  descriptions,  best  appear,  for 
the  purposes  of  taxation,  through  the  gains  realized 
by  means  of  them.  If,  for  any  reason,  any  of  these 
become  unproductive,  taxes  should  cease  to  be  de- 
rived from  them ;  indeed,  must  cease  to  be  derived 
from  them,  because  their  owners  can  no  longer  pay 
by  virtue  of  them.     It  may  be  objected,  that  lands, 


ON  TAXATION.  519 

for  example,  presently  unproductive,  may  be  held  J 
untaxed  under  this  principle,  held  for  the  sake  of  a  ^^^^^  • 
prospective  rise  of  price.  Very  well ;  when  they  are 
sold  at  a  profit,  let  the  owner  be  taxed  on  that  profit: 
it  will  be  time  enough  then,  especially  as  men  do 
not  like  to  hold  unproductive  forms  of  property.  It 
may  also  be  objected,  that,  under  this  principle, 
wages,  the  result  of  personal  and  professional  exer- 
tion, would  be  taxed  just  the  same  as  profits  and 
rents,  the  result  of  previously  accumulated  property. 
Very  well ;  they  ought  to  be  so  taxed.  Can  any- 
body give  a  solid  reason  why  they  ought  not  to  be 
so  taxed  ?  One  may  say,  that  a  professional  man 
earning  a  large  income,  on  which  taxes  are  paid  the 
same  as  on  a  similar  income  of  a  land-proprietor, 
dying,  leaves  to  his  children  no  further  means  of 
earning,  while  the  land-proprietor,  dying,  does  leave 
such  means.  Granted  ;  but  the  land  income  con- 
tinues to  pay  taxes,  while  that  professional  income 
does  not!  Other  members  of  the  profession  will  do 
the  business  which  the  former  one  would  have  done 
had  he  lived,  and  they  will  pay  taxes  on  the  income 
from  it.  What  a  man  transmits  to  his  children, 
whether  a  great  name  or  a  great  estate,  has  nothing 
to  do,  as  I  take  it,  with  the  amount  of  taxes  that  he 
ought  to  pay  while  he  lives.  There  is  an  illusion 
about  land  and  realized  property  that  needs  to  be 
dissipated  before  men  will  understand  clearly  the 
whole  matter  of  taxation.  Without  constant  watch- 
fulness and  foresight,  without  constant  efforts  in  im- 
provements and  repairs,  almost  every  form  of  realized 
property  will  rapidly  deteriorate  and  become  unpro- 
ductive.    Land  even  in  Great  Britain,  where  land  is 


520  ELEMENTS  OF  POLITICAL  ECONOMY. 

scarce,  is  only  worth  about  twenty-five  years  rent ; 
and  without  the  exercise  of  intelligence  and  will 
property  ceases  to  be.  Property  has  its  birth  in  ser- 
vices exchanged;  services  exchanged  give  rise  to 
gains ;  taxes  can  only  be  paid  out  of  these  gains ; 
they  ought  to  be  proportioned  to  the  amount  of  these 
gains  without  any  reference  to  the  class  of  exchanges 
producing  them  ;  while  the  right  to  tax  on  the  part  of 
the  government  is  connected  ivith  a  service  rendered 
by  government^  and  both  grows  out  of  and  is  limited 
by  the  right  to  exchange  on  the  part  of  the  citizens. 
These  considerations,  though  they  may  exclude  the 
propriety  of  a  poll-tax,  are  consistent  with  most 
other  forms  of  taxation,  and  give  unity  to  them. 

If,  then,  taxes  are  to  be  laid  on  services,  thus  sub- 
tracting a  portion  from  the  gains  which  accompany 
them,  the  question  now  arises  in  what  way  are  they 
to  be  laid  ?  They  are  commonly  divided  into  two 
classes,  direct  and  indirect.  A  direct  tax  is  levied 
on  the  very  persons  who  are  expected  themselves  to 
pay  it;  an  indirect  tax  is  demanded  from  one  person 
in  the  expectation  that  he  will  pay  it  provisionally, 
but  will  indemnify  himself  in  the  higher  price  which 
he  will  receive  from  the  ultimate  consumer.  Thus 
an  income  tax  is  direct,  while  duties  laid  on  imported 
goods  are  indirect.  There  has  been  a  great  amount 
of  discussion  on  the  point  whether  direct  or  indirect 
taxation  be  the  more  eligible  form ;  but  the  reader 
of  penetration  will  perceive  that  there  is  not  at  bot- 
-^^o-^^^A.  ^^"^  ^"y  ^^^y  radical  difference  between  them ;  each 
hwi  Xi^  ^^  ^^^^^  ^  *^^  °"  actual  or  possible  exchanges,  with 
V^-'^^'^^^  '  this  main  difference,  that  men  pay  indirect  taxes  as 
a  part  of  the  price  of  the  goods  they  buy,  without 


ON   TAXATION.  521 

thinking  perhaps  that  it  is  a  tax  they  are  paying,  and 
consequently  without  any  of  the  repugnance  that  is 
sometimes   felt  towards  a  tax-gatherer  who  comes     a 
with  an  unwelcome  demand.     Thus  indirect  taxes  ^^^"^^-ix*^ 
are  conveniently  and  economically  collected.     Espe-ii*y~TM-t^ 
cially  is  this  true  of  impost  duties ;  since  one  set  o^J]^^  ^  ( 
custom-house  officers  collect  easily  and  at  once  iheTV      ^ 
government  tax  which  is  ultimately  paid  by  con-i^^^^-J^'^ 
sumers  all  over  the  country.     The  taxes,  by  stamps, 
on  banks,  liquors,  tobacco,  railroad,  insurance,  and 
gas  companies,  levied  by  the  present  United  States 
internal  revenue  law,  are  indirect  taxes,  whereby  the 
government  gets  in  a  lump  what  is  afterwards  dis- 
tributed   over   many   subordinate    exchanges.     The 
countervailing    disadvantage    of    indirect   taxation, 
however,  is,  that  the  price  of  the  commodity  is  usually 
enhanced  to  an  extent  much  beyond  the  amount  of- 
the  tax,  partly  because  it  is   a   cover  under  which 
dealers  may  put  an  unreasonable  demand,  and  partly 
because  the  tax,  having  to  be   advanced  over  and 
over  again  by  the  intermediate  dealers,  profits  rapidly 
accumulate  as  an  element  of  the  price. 

Direct  taxes  are  laid  either  on  income  or  expendi- 
ture. An  income  tax,  if  the  exact  amount  of  income 
could  in  all  cases  be  ascertained,  would  be  a  perfectly  .^yx^-^AJir^ 
unexceptionable  form  of  taxation.  The  only  sources 
of  income  are  three  :  wages,  profits,  rents.  I  do  not 
think  that  gifts  are  legitimately  taxable ;  they  lie  out- 
side the  field  of  exchange ;  they  spring  from  sympa- 
thy, from  benevolence,  from  duty  ;  and  while  ex-  ' 
change  must  claim  all  that  fairly  belongs  to  it,  it 
must  be  careful  not  to  throw  discouragements  into 
the  adjacent  but  distinct  field  of  morals.     Hence,  it 


522      ELEMENTS  OF  POLITICAL  ECONOMY 

may  well  be  questioned  whether  legacies,  bequeath- 
ments,  gifts  to  charitable  and  educational  institu- 
A       ^  tions,  and  gifts  to  individuals  proceeding  from  friend- 
^^^r-J^^-^'  ship,  gratitude,  or  other  such  impulse,  are  properly 
subject  to  taxation.     The  property  is  taxable  in  the 
hands  of  the  donor,  and  may  be  in  the  hands  of  the 
recipient,  but  the  passage  from  one  to  the  other  ought 
to  be  unobstructed  by  a  tax.     Gifts  then  excepted, 
and  plunder,  which  is  out  of  the  question,  the  sources 
of  income  are  few  and  simple,  and  there  is  no  great 
difficulty  in  every  man's  ascertaining  about  what  his 
annual  income  is.      Because  this  income,   exactly 
ascertained,  exactly  measures  the  gains  of  his   ex- 
vli^J'VAjJTvy  •  changes  for  that  year,  a  tax  upon  that  income  is  the 
u        ,  r         fairest  of  all  possible  forms  of  taxation,  and  might, 
^2^^K*Y^    I  think,  be  made  with  advantage,  in  time,  to  super- 
Xa*v3  /*^  ,    sede  all  other  forms.     The  late  national  income  tax 
was  new  in  this  country,  and  for  certain  reasons  not 
inherent  in  the  nature  of  the  tax  became  unpopular 
in  influential  quarters,  and  was  discontinued  ;    but 
the  English  have  found  their  income  tax  to  be  for 
more  than  thirty  years  the  most  uniform,  unfailing, 
expansive,  and  responsive  to  control  of  all  their  fiscal 
expedients.     Their  rate  has  varied  from  four  to  six- 
teen pence  to  the   pound  of  income.     In   1857,  it 
realized   $80,255,000.     In   1866,  our   own   national 
income   tax    realized   $60,894,135.      The   Germans, 
too,  are  now  applying  an  income  tax  as  one  of  their 
sources  of  revenue. 

Besides  the  complete  harmony  of  an  income  tax 
with  the  general  principles  of  taxation,  as  already 
unfolded,  it  has  a  grand  advantage  over  all  other 
forms  of  taxation  in  that  it  has  no  tendency  to  dis- 


ON   TAXATION.  523 

iurh  prices.     "Were  there  no  taxation  except  on  in-  

comes,  and  were  the  incomes  rightly  rendered,  i\\Q  ^^^^M^^ 
prices  of  everything  would  be  just  as  if  there  were  4^ 
no  taxes.     Taxation  would  then  be  like  the  atmos-^^        JLr^' 
phere,  pressing  equally  on  all  points  and  consciously'*"'*'^^"*'^^ 
on  none.     It  is  through  ti'icks  wrought  on  prices  that 
the  greatest  injustice   is  done  and  suffered  in  this 
country   at  present ;    the   depreciated  currency,  for 
example,  raises    some    prices    and   not  others,   and 
some  prices  before   others,  and  thus  distributes  its 
mischiefs    unequally;    the    "protective"   tariif-taxes 
play  fantastic  tricks  with   prices,  raising  some  and 
depressing  others,  thus  working  monstrous  injustice 
on  a  great  scale ;  and  almost  all  forms  of  taxation 
become  unequal   and   unjust   through   their  diverse 
action  on  prices.     But  a  universal  income  tax,  prop- 
erly  levied   and  fully  responded  to   by  the  payers, 
would  have  no  influence  at  all  upon  prices,  could 
by  no  possibility  work  essential  injustice,  and  would 
be  certain  to  be  very  productive. 

Another  great  advantage  of  an  income  tax  in 
such  a  country  as  this  would  be,  that  all  men  would 
keep  accounts,  more  orderly  methods  of  business 
would  prevail,  men  would  know  better  where  they 
stand  themselves  and  whom  of  others  to  trust,  fail- 
ures would  be  less  frequent,  and  everything  would 
be  more  known  and  above-board. 

In  this  country,  where  taxes  have  to  be  paid,  first  ? , ..    r.  sr  -^ 
to  the  local  municipality,  then  to  the  state,  and  last    ,^   ;^;  ;^ 
to  the  nation,  income  taxes,  were  all  others  ^'^ol- ^,-W  ^j 
ished,  would  have  this  immense  advantage,  that  the^^_^     ^    - 
municipality  might  ascertain  the  incomes  once  for 
\11,  the  state  and  the  nation   merely  collecting  an 


524  ELEMENTS   OF  POLITICAL  ECONOMY. 

additional  per  cent,  for  themselves;  or  better  still, 
by  amicable  arrangement,  neither  party  yielding  its 
inherent  right  to  tax,  one  set  of  officials  might  ascer- 
tain and  collect  the  tax  for  all  three  governments 
^^        .  once  for  all.     An  objection  has  been  raised  from  the 

^J^  ^\}A)J^  publicity  Tesu\\\ng  from  an  income  tax  This  is  no 
L  jj^eA^,  objection  at  all,  inasmuch  as  every  man  has  a  right 
'^^^^»  to  know  that  his  neighbors  are  contributing  to  sup- 
port the  government  ;?ft;  rata  with  himself.  In  bear- 
ing up  the  burden  of  government  all  citizens  are 
copartners,  and  in  this  view  each  has  a  right  to  de- 
mand a  look  into  the  books  of  the  others.  Another 
objection  has  been  raised,  that  men  will  not  give  in 
iy^JiT  i>■A^'^---  a  true  return  of  their  income.  Ah !  but  they  can  be 
U^  rtJuv*-*^*'.  made  to  do  so,  as  the  forms  are  perfected,  as  fraudu- 
lent returns  are  promptly  punished  by  additional 
assessment  and  collection,  and  as  the  memory  and 
conscience  of  the  payers  are  quickened  by  the  action 
of  a  healthful  public  opinion  brought  to  bear  through 
the  annual  publication  of  the  list  of  their  returns. 
Men  are  not  so  isolated  from  each  other  as  that  a 
man's  neighbors  do  not  know  pretty  well  the  gen- 
eral amount  of  his  income.  There  is  the  additional 
security  of  an  oath,  of  the  fear  of  punishment,  and 
of  the  wish  to  stand  well  with  one's  class.  At  the 
worst,  it  may  be  said,  that  evasions  and  fraud  ac- 
company also  all  other  forms  of  taxation.  No  fair 
experiment  has  yet  been  made  in  this  country  with 
an  income  tax ;  special  reasons  made  the  late  law 
obnoxious ;  but  if  the  system  were  permanently  es- 
tablished in  lieu  of  all  others,  the  practical  difficul- 
ties under  it  would  grow  less  and  less  every  year. 
It  may  be  long  before  we  shall  ever  come  to  this ; 


ON  TAXATION.  525 

but  the  truth  remains  that  income  taxes  are  the  just- 
est  of  taxes.  It  is  incumbent  on  me,  however,  to 
give  the  principles  and  rules  relating  to  the  inferior 
and  current  methods  of  taxation. 

Besides  income  taxes,  other  direct  taxes  are  on  ex-  /y^  JaAA' 
penditure  of  some  special  kinds,  such  as  those  on  j  ^  [^ 
horses,  carriages,  watches,  plate,  and  so  on-,  kept  for  ^"^'^^ 
personal  use.  As  the  difficulty  of  a  tax  on  a  person's 
whole  expenditure  is  much  greater  than  one  on  his 
whole  income,  inasmuch  as  the  items  are  more  nu-  ^ 
merous  and  more  diffused,  it  is  only  attempted  to  lay  '"^  **^  ^ 
a  few  taxes  on  some  peculiar  items  of  expenditure, 
such  as  those  above  mentioned ;  but  as  these  do  not 
reach  all  persons  with  any  degree  of  equality,  they 
are  so  far  forth  objectionable.  A  house- tax,  levied 
on  the  occupier,  and  not  on  the  owner  unless  he  be 
at  the  same  time  the  occupier,  would  be  a  direct  tax 
on  expenditure  every  way  unobjectionable.^  Taking 
society  at  large,  the  house  a  man  lives  in  and  its 
furniture  are  probably  the  most  accurate  index  attain- 
able of  the  size  of  his  general  expenditures.  They 
are  open  to  observation  and  current  remark  ;  they  are 
that  on  which  persons  rely  more  perhaps  than  on 
anything  else  external  for  their  consideration  and 
station  in  life ;  the  tax  could  be  assessed  with  very 
little  trouble  on  the  part  of  the  assessor ;  and  it  is 
well  worthy  the  attention  of  our  national  legislature, 
whether  such  a  tax,  if  more  taxes  should  be  needed, 
would  not  be  more  equal  and  more  easy  of  collection 
than  any  others  now  open ;  or  whether  it  might  not 
with  advantage  take  the  place  of  some  of  th^  com- 
plicated and  objectionable  taxes  now  laid.     Direct 

iMill,  chap.  III.,  books. 


526  ELEMENTS  OF  POLITICAL  ECONOMY. 

taxes  have  this  general  advantage  over  indirect,  that 
they  bring  the  people  into  more  immediate  contact 
with  the  government  that  lays  the  taxes,  and  subject 
it  to  a  quicker  supervision  and  more  effectual  curb, 
whenever  its  expenditures  grow  larger  than  the  peo- 
ple think  it  desirable  to  incur;  they  have  this  general 
disadvantage  over  indirect  taxes,  especially  over  im- 
posts, that  the  number  of  officials  required  to  assess 
and  collect  them  is  much  larger,  thus  swallowing  up 
a  part  of  the  proceeds  of  the  taxes,  with  this  liabil- 
ity also  of  bringing  the  people  into  an  attitude  of 
hostility  to  the  government  and  to  its  contemplated 
expenditures.  But  whether  the  taxes  be  direct  or 
indirect,  or  whatever  be  their  form,  except  it  be  a  poll- 
tax,  which  is  questionable  at  best,  they  are  laid  upon 
exchanges,  and  are  designed  to  withdraw  for  the  use 
of  the  government  a  part  of  the  gains  of  exchanges. 
From  this  point  of  view,  which  gives  unity  to  the 
whole  field  of  taxation,  some  practical  hints  may 
usefully  conclude  this  discussion  and  this  volume. 

(1.)  There  is  every  opportunity  in  this  country  to 
try  experiments  in  taxation,  and  to  reach  through 
experience  the  best  modes,  since  the  states  establish 
their  own  systems  independently  of  any  national 
action.  There  is  consequently  great  diversity  of 
methods  in  different  localities  and  under  the  differ- 
ent governments.  The  nation  raises  its  revenue 
mainly  through  a  tariff,  subordinately  through  an 
excise,  both  indirect  taxation.  Most"  of  the  states 
raise  their  revenue  by  direct  taxes  upon  land  or 
other  property,  though  Pennsylvania  has  recently 
tried  with  gratifying  results  the  expedient  of  an  in- 
direct tax  on  corporations  in  lieu  of  her  former  direct 


ON  TAXATION.  527 

taxes.  It  may  possibly  be,  considering  the  complex 
character  of  our  government  —  the  wheels  within  the 
wheel — that  a  combination  of  different  taxes,  indi- 
rect for  the  nation  and  direct  for  the  states,  may  reach 
a  rough  result  of  justice.  But  in  order  that  it  may 
do  this  even  approximately,  there  must  be  more  sim- 
plicity in  each  method,  and  a  more  studied  harmony 
between  them,  than  has  been  hitherto  attempted. 
Taxes  must  be  seen  to  be  taxes^  and  viewed  with  a 
comprehensive  reference  to  other  taxes  falling  upon 
the  same  persons,  before  anything  like  a  system  of 
taxation  can  exist  for  the  United  States. 

(2.)  If  direct  taxes,  other  than  an  income  tax, 
be  levied,  it  is  very  clear  that  credits  are  a  legiti- 
mate subject  of  taxation.  Whatever  is  bought  and 
sold  is  properly  enough  taxed,  if  the  needs  of  the 
government  require  it,  and  if  such  taxation  would 
be  productive  and  not  too  unequal.  As  values 
always  spring  from  the  action  of  individuals,  so 
the  incidence  of  taxes  is  upon  persons  rather  than 
upon  things  ;  and  the  question  is  what  can  a  man 
sell,  or  what  has  he  already  sold,  on  the  gains  of 
which  sale  the  government  may  lay  some  claim? 
If  I  have  a  mortgage  on  my  neighbor's  farm,  I  can  fio-y.  c*-v^ 
sell  it  at  any  time  to  a  third  party  ;  it  pays  me  in-  LV>-«^Vv*^i 
terest  ad  interim^  and  1  can  collect  it  at  maturity. 
Government  therefore  properly  taxes  me  for  that 
credit  in  my  possession.  It  is  a  part  of  my  property. 
The  holders  of  the  government  bonds  occupy  an 
economical  position  exactly  similar.  They  have  a 
lien  on  the  national  property  and  income.  The 
credits  they  hold  are  vendible  commodities.  They 
are  a  paper  bearing  interest.     They  can  be  collected 


528  ELEMENTS  OF  POLITICAL  ECONOMY. 

at  maturity.  They  are  indeed  exempted  by  law  from 
<^  Hf^/^i^ .  municipal  and  State  taxation.  That  was  a  legitimate 
inducement  held  out  to  everybody  alike  to  invest  in 
the  bonds.  But  there  is  no  reason  why  the  nation, 
having  withdrawn  them  from  town  and  State  taxa- 
tion, should  not  itself  all  the  more  subject  them  to 
their  fair  share  of  the  national  burdens.  The  income 
derived  from  them  should  be  taxed  as  soon  as  any 
other  income  is.  It  is  no  longer  any  ground  of  merit, 
even  if  it  ever  has  been,  for  persons  to  buy  the  gov- 
ernment debt.  It  is  a  mercantile  transaction,  and 
should  be  so  considered  in  relation  to  taxes.  So  of 
other  mercantile  credits.     They  are  taxable. 

(3.)  Taxes  in  general,  in  order  to  be  most  pro- 
ductive in  the  long  run,  as  well  as  discourage  as  little 
/^  J.,  as,  possible  the  exchanges  which  would  otherwise  go 
forward,  ought  to  be  low  relatively  to  the  amount  of 
values  exchangeable.  A  high  tax  not  infrequently 
stops  exchanges. in  the  taxed  articles  altogether,  and 
of  course  the  tax  then  realizes  nothing  to  the  govern- 
ment. As  the  only  motive  to  an  exchange  is  the 
gain  of  it,  the  exchange  ceases  whenever  the  govern- 
ment cuts  so  deeply  into  the  gain  as  to  leave  little 
margin  to  the  exchangers.  The  greater  the  gain  left 
to  the  parties,  after  the  tax  is  abstracted,  the  more 
numerous  will  the  exchanges  become,  and  the  greater 
the  number  of  times  will  the  tax  fall  into  the  coffers 
of  the  government.  In  almost  all  articles,  consump- 
tion increases  from  a  lowered  price  in  even  a  greater 
ratio  than  the  diminution  of  the  rate  of  tax  ;  so  that 
the  interests  of  consumers  and  of  the  revenue  are 
not  antagonistic  but  harmonious.  On  articles  of 
luxury  and  ostentation,  and  on  those,  such  as  liquors 


ON    TAXATION.  529 

and  tobaccos,  whose  moral  effects  are  clearly  ques-  ^       f 
tionable,  very  high  taxes  may  properly  enough   be  ^  ^ 
laid,  because  their  incidence  will  hardly  tend  to  di-  '^-'^<y*^^ 
minish  consumption,  and  it  would  scarcely  be  to  be  re- 
gretted if  it  did  ;  but  with  this  exception,  duties  and 
taxes  should  be  levied  at  a  low  rate  per  cent,  as  well 
for  the  interest  of  revenue  as  of  consumers.     It  is  to 
be  added,  however,  that  the  taxes  even  on  these  arti- 
cles may  be  too  high  to  meet  either  a  revenue  or  a 
moral  purpose.     The  internal  tax  of  two  dollars  a 
gallon  upon  distilled   spirits  was   of  this   character. 
Experience  has  demonstrated  that  a  less  tax  will  pro- 
duce more  revenue,  and  the  drinking  of  whiskey,  bad 
as  that  is,  is  less  culpable  than  the  endless  frauds  on 
the  government  provoked  by  the  high  tax. 

(4.)  Duties  and  taxes  should  be  simple,  and  their ^  Tf^ 
amount  easily  calculable   by  the  payer  beforehand.  ^^^         v 
The  complication  of  specific  with  ad  valorem  duties  is'^-^^'H^ 
a  decided  objection  to  the  present  tariff.      The  latter 
is  a  duty  of  so  much  per  cent,  on  the  invoiced  or  ap- 
praised value  of  the  goods :  the  former  is  a  duty  of  so 
many  cents  or  dollars  on  the  pound,  yard,  gallon,  or 
other  quantity.     There  are  too  many  practical  diffi- 
culties connected  with  either  form  of  duty  to  make 
it  proper  to  combine  the  two  upon  the  same  article. 
To  combine  them  thus  is  one  of  the  devices  of  pro-  ij    k^ 
tection.     On  the  whole,  specific  duties  are  preferable     /*\ 
to  ad  valorem  because  they  give  less  chance  to  frauds,  Mm.  |^ 
and  because  importers,  and  others,  can  make  their 
calculations  easier  on  the  basis  of  them.    To  be  sure, 
this  involves  that  high-priced  grades  of  an  article  pay 
no  higher  tax  than  low-priced  grades  of  the  same  5 
but  this  consideration  is  largely  overbalanced  by  those 

.34 


530  ELEMENTS   OF   POLITICAL   ECONOMY. 

of  convenience  and  productiveness.     So  far  as  is  pos- 
sible,  taxes  should  be  levied  upon  commodities  once 
/  J,    for  all,  and  then  an  end.     The  opposite  principle  of 

W^<K^  taxing  commodities  every  time  they  change  hands 
W  eyO^^hrows  an  indefinite  burden  on  exchange,  whose 
weight  cannot  well  be  calculated  beforehand, either  by 
the  consumer  or  by  the  government,  through  uncer- 
tainty as  to  the  number  of  transfers.  Exchanges  in- 
deed  are  the  only  legitimate  subject  of  taxation,  but 
not  every  specific  and  subordinate  exchange.  An  at- 
tempt to  tax  all  sales  whatever  was  followed  in  Spain, 
and  will  be  followed  everywhere,  by  a  sluggish  indis- 
position to  trade  at  all.  Let  the  amount  of  the  Irax  be 
definite,  and  let  everybody  be  sure  that  when  it  is  once 
paid  government  will  produce  no  further  claim,  and 
industry  will  go  along  under  heavy  taxes  better  than 
under  those  nominally  lighter  to  w^hich  uncertainty 
as  to  time  or  amount  attaches.  All  the  more  advanced 
governments  have  been  simplifying  of  late  years 
their  systems  of  taxation,  and  collecting  their  revenue 
at  fewer  points,  and  under  more  tangible  conditions, 
in  order  to  interfere  as  little  as  possible  with  a  free 
industry  and  free  exchange.  England,  for  instance, 
has  given  up  a  great  variety  of  taxes,  and  now  col- 
lects her  revenue  about  as  follows: — (customs  for 
1872,  on  seventeen  articles,  all  others  admitted  free, 
yielded  ^20,513,583):— 

Customs,  32  per  cent.  Stamps,  12  per  cent. 

Excise,  30  per  cent.  Post-office,  6  per  cent. 

Taxes,  16  per  cent.  Miscellaneous,  4  per  cent. 

(5.)  Our  internal  revenue  system  has  been  greatly 
simplified  and  improved  by  recent  legislation.  If  the 
tariff  could  be  readjusted  on  the  same  principle,  little 


ON   TAXATION.  f31 

would  be  left  to  be  desired  in  our  tax-system.  The 
principle  is,  relativel}'  low  taxes  on  comparatively 
few  things.  The  principle  is  simple  :  the  problem  is 
difficult;  but  wonderfully  less  so,  the  moment  all 
attempts  are  given  up  to  foster  any  branch  of  indus- 
try whatever.  Our  legislators  are  not  called  upon 
to  foster  any  industries.  They  cannot  permanently 
do  it,  if  they  try;  and  they  do  immense  harm,  while 
they  try.  Their  duties  would  be  easier,  and  better 
performed,  if  they  looked  solely  to  the  best  methods 
of  raising  money  in  such  a  way  as  shall  least  inter- 
fere with  what  would  otherwise  be  the  ongoing  of 
exchanges  in  all  directions.  Duties  that  prevent 
importations,  and  the  consequent  exportation  of 
domestic  products  in  return ;  and  duties  whose  direct 
effect  is  to  raise  the  price  of  other  articles  than  those 
on  which  they  are  levied  ;  are  objectionable,  and,  for 
the  most  part,  can  be  dispensed  with.  In  case  duties 
are  laid  on  articles,  as  spirits,  which  are  also  produced 
at  home,  there  should  be  an  excise  on  the  home  prod- 
uct equivalent  to  the  tariff-tax  on  the  foreign,  other- 
wise the  people  will  pay  more  in  consequence  of  the 
tax  than  government  will  get.  This  subsidiary  prin- 
ciple is  important. 

(6.)  Taxes  and  duties  should  be  collected  by  the 
government  in  as  economical  a  manner  as  possible, 
that  is  to  say,  the  money  should  be  kept  out  of  the 
pockets  of  the  people  as  short  a  time  as  possible, 
disbursement  following  quick  upon  collection.  It  is 
poor  policy  to  gather  taxes  at  the  beginning  of  the 
year  which  will  not  be  disbursed  till  the  end  of  the 
year.  Let  the  people  use  their  funds  till  they  are 
wanted  at  the  treasury ;  and  if  the  taxes  do  not  then 


532  ELEMENTS  OF  POLITICAL  ECONOMY. 

come  in  as  fast  as  wanted,  it  is  better  to  issue  what 
are  called  in  England  exchequer-bills,  and  in  the 
United  States  certificates  of  indebtedness,  to  be  re- 
deemed at  the  end  of  the  year  from  the  proceeds  of 
the  taxes,  than  to  let  the  people's  money  lie  idle  in 
the  treasury. 

(7.)  If  the  necessities  of  the  State  require  it,  gov- 
ernment has  the  right  to  demand  from  all  persons 
who  are  capable  of  making  exchanges,  and  who  do 
make  them,  something  in  the  form  of  taxes.  But  it 
is  every  way  better,  when  possible,  that  people  of 
very  moderate  means  should  be  exempted  altogethei 
from  direct  taxes  ;  and  the  payment  of  indirect  taxes 
is  a  matter  more  in  their  own  option,  since  they  are 
at  liberty  to  buy  much  or  little  of  those  commoditiea 
subjected  to  an  indirect  tax.  In  the  State  of  Massa- 
chusetts, incomes  not  exceeding  $2,000  are  exempted 
by  the  law.  If  a  house-tax  should  be  levied,  all  houses 
below  a  certain  grade  of  style  and  comfort  should  be 
exempted,  and  the  tax  pass  up  by  easy  gradations 
from  those  just  taxed  to  the  palatial  residences  of 
the  rich.  In  the  present  age  of  the  world,  the  well-to- 
do  citizens  of  every  country  are  able  to  bear  without 
too  great  difficulty  the  burdens  of  the  government ; 
and  nothing  tests  better  the  degree  of  civilization 
which  a  nation  has  reached  than  the  care  and  solici- 
tude it  displays  for  the  welfare  of  its  poorer  citizens. 

(8.)  Who  pays  the  indirect  tax?  Can  the  pro- 
ducer throw  it  wholly  upon  the  consumer  ?  Can  the 
banks,  for  example,  throw  their  taxes  wholly  upon 
their  customers  ?  Producers  and  dealers  and  bank- 
ers and  companies  add  the  tax  demanded  from  them, 
and  sometimes  more  than  the  tax  under  color  of  it, 


ON   TAXATION*  53^5 

to  the  price  of  their  wares.  But  it  is  not  true  that 
they  can  always  realize  the  whole  of  this  enhanced 
price.  Generally  they  can,  sometimes  they  cannot. 
If  the  article  be  one  of  necessity,  or  a  luxury  that 
has  become  equivalent  to  a  necessity,  and  there  be 
no  other  source  of  supply  than  the  taxed  one,  then, 
as  a  rule,  the  tax  falls  wholly  on  the  consumer,  and 
is  a  matter  of  indifference  to  the  producer  or  dealer. 
But  the  usual  effect  of  an  enhanced  price  is  to  lessen 
demand,  and  if  the  article  is  dispensable,  or  its  con- 
sumption can  be  lessened,  or  it  can  be  obtained  else- 
where, the  market  will  be  sluggish  under  the  tax, 
and  producers  or  dealers  will  be  likely  to  tempt  it  by 
lowering  prices,  in  other  words,  by  sharing  the  tax 
with  consumers,  and  paying  that  share  out  of  profits. 
This  is  the  principle.  Producers  and  dealers  would 
rather  the  tax  were  off.  Consumers  generally,  but 
do  not  always,  pay  the  whole  of  it. 

(9.)  Much  has  been  written,  and  very  little  is 
known,  about  the  tendency  of  taxes  to  diffuse  them- 
selves. By  this  is  meant,  that  it  does  not  make  so 
much  difference  upon  what  or  upon  whom  a  tax  is 
originally  levied,  because  the  tendency  of  things  is 
to  diffuse  it,  that  is,  to  compel  others  to  assist  in 
paying  the  tax.  The  result  of  my  own  reading  and 
reflection  on  this  point  is  the  conclusion  that  taxes 
do  not  "diffuse  themselves"  nearly  so  much  as  has 
been  sometimes  supposed ;  and  that,  at  any  rate,  it 
is  a  good  deal  better  to  take  the  taxes  from  those 
who  ought  to  pay  them,  than  to  lay  them  at  ran- 
dom, and  then  to  trust  some  unknown  forces  to 
make  them  afterwards  just.  It  is  certain  that  some 
unjust  taxes  cannot  be  diffused  ;  for  example,  the 


534  ELEMENTS    OF  POLITICAL  ECONOMY. 

protective  tariff-taxes  paid  by  the  farmers  upon  arti- 
cles of  necessary  consumption.  These  taxes  have 
no  tendency  to  raise  the  price  of  the  farmers'  prod- 
uce, for  that  is  determined  by  the  foreign  market,  to 
which  large  parts  of  the  produce  are  exported.  For 
such  taxes  the  farmers  cannot  reimburse  themselves. 
Taxes  that  affect  no  prices  are  the  best  of  all ;  taxes 
that  affect  prices  the  least  are  the  next  best ;  and 
taxes  that  are  designed  to  affect  prices  are  the  very 
worst. 


INDEXES. 


INDEX  TO  PERSONS. 


Abraham,  2.  230. 
Adams,  J.  Q.',  40. 

Aristophanes,  276,  278. 
Aristotle,  5,  6,  8,  U,  16,  27. 
Atwater,  Prof.,  355. 
Augustus,  12. 

Bacon,  Lord,  44. 

Bancroft,  George,  474,  491,  506. 

Bascom,  Prof.,  40,  185. 

Bastiat,  34,  35,  36,  69,  189,  197. 

Beccaria,  37. 

Bentham,  319. 

Benton,  39. 

Biddle,  Nicholas,  342. 

Bigelow,  E.  B.,  40. 

Boudinot,  332. 

Bowen,  Prof.,  40,  41,  209. 

Browne,  J.  Ross,  452. 

Buchanan,  President,  318. 

Buckle,  28. 

Butts,  Isaac,  40. 

Calhoun,  39, 341,  438, 499,  500, 502. 

Carey,  40.  41,  51,  106,  151,  169, 
179,  182,'  189,  195,  197,  198,  199, 
239,  421,  426,  444,  446  448. 

Carlyle,  296. 

Cato,  10. 

Chalmers,  137. 

Chase,  Secretary,  344. 

Chatham,  Lord,  493. 

Chevalier,  36,  444. 

Cheves,  Langdon,  342. 

Cicero,  10,  12,  13. 

Clay,  501,  502. 

Cleon,  276. 

Clinton,  George,  338. 

Cobden,  444. 

Colbert,  32,  447. 

Columbus,  332. 

Colwell,  40. 

Condillac,  23,  33,  34. 

Constantine,  262. 


Cox,  S.  S.,  39. 

Crusoe,  Robinson,  48,  617. 

Dallas,  341. 
Defoe,  Daniel,  479. 
De  Quincey,  219. 
Duane,  of  N.  Y.,  342. 

Elder,  40. 

Elizabeth,  Queen,  17,  113,  114, 17». 

Elliott,  E.  B.,  262,  267. 

Ephron,  2. 

Eryxias,  8,  12. 

Ezekiel,  3. 

Fawcett,  Prof.,  30. 
Ferris,  J.  A.,  40. 
"Financier,"  the,  355. 

Gallatin,  39. 
Garfield,  Gen.,  39,  360. 
Genovesi,  3T. 
George  I.,  327. 
Gibbon,  115. 
Gladstone,  469,  483. 
Godkin,  E.  L.,  40. 
Godwin,  Parke,  40. 
Greeley,  40,  426. 
Grosvenor,  Col.,  40,  467. 


Hamilco,  3. 

Hamilton,   39,    324,  325,  32£ 

336,  337,  338,  407. 
Hankey,  30. 
Hanno,  3. 

Harris,  Edward,  573. 
Herodotus,  3,  262. 
Heth,  2. 

Hildreth,  Richard,  498. 
Hiram,  King,  230. 
Homer,  3, 30. 

Homer,  Sidney,  399,  457,  473. 
Hume,  24,  25,  26,  i>37. 
Huskisson,  30,  483. 


,  334, 


536 


INDEXES. 


Jackson,  342,  343,  502. 
James  II.,  305. 
Jefferson,  299,  328,  329. 
Jevons,  Prof.,  31. 
Julius  Caesar,  262. 
Justinian,  11,  262. 

Key  of  Maryland,  318. 
Knight,  Charles,  479,  481. 
Knox,  Gen.,  337. 

Law,  John,  292. 
Lawson,  30. 
Lind,  Jenny,  139. 
List,  37. 
Livy,  262. 
Locke,  23,  24,  200. 
Louis  XIV.,  32. 
Louis  XV.,  27. 

Macaulay,  275,  305. 

Macleod,  30,  31,  34,  51,  69, 169,  364. 

Martin,  Henri,  447. 

Mason  and  Dixon,  333. 

Malthus,  29,  157. 

McCulloch,  J.  R.,  17,  21,  26,  29,  51, 

69,82,189. 
McCulloch,  Secretary,  39,  301,  337, 

464.  ^»      »        ,        , 

McLane,  Secretary,  342. 

Mill,  J.  S.,  29,  51,  52,  75,  189,  214, 

525. 
Mirabeau,  32,  295. 
Montague,  280. 
Moran,  40. 

Morris,  Robert,  324,  326,  328. 
Moses,  312. 
Mun,  Thomas,  18. 
Murillo,  100. 

Nahum,  3. 

Napoleon,  37,  112,  369. 

Newton,  262,  280,  433. 

Opdyke,  Geo.,  40. 
Orban,  M.  Frere,  475. 
Orleans,  Duke  of,  292. 

Paganini,  138. 
Paley,  46. 
Patterson,  30. 
Peel,  Sir  Robert,  465. 
Pitt,  William,  33,  307. 
Plato,  5,  7,  262. 
Potter,  G.  A.,  40. 
Pretender,  Young,  306. 


Price,  Prof.  Bonamy,  30,  359. 

QuESNAY,  23,  26,  27,  28,  32. 

Rae,  40. 

Randolph,  337. 

Ran,  Prof.,  37. 

Raymond,  Daniel,  40. 

Reed,  S.  R.,  40. 

Ricardo,  29,  82,  189,  197,  200,  201. 

Rittenhouse,  David,  333. 

Robespierre,  298. 

Sartain,  140,  227. 

Say,  25,  34,  51,  126. 

Schreiner,  355. 

Schurz,  Carl,  39. 

Senior,  29,  51,  120,  170,  189. 

Sheffield,  Lord,  494. 

Sismondi,  51. 

Smith,  Adam,  16,  18,  23,  24,  26,  27, 

29,  35.  74,  82,  118,  129,  132, 141, 

189,  319,  425,  481. 
Smith,  E.  P.,  40. 
Smith,  J.  Y.,  40. 
Socrates,  8. 

Solomon,  King,  230,  265. 
Somers,  280. 
Soult,  100. 

Spaulding,  E.  G.,  40. 
Spencer,  Herbert,  389. 
Stein,  37. 
Stone,  D.  M.,  40. 
Storch,  51. 
Suetonius,  262. 

Talleyrand,  295. 
Taney,  Chief  Justice,  34«. 
Thiers,  296. 
Thornton,  30. 
Tooke,  101. 
Troughton,  244. 
Tubal-Cain,  172. 
Turgot,  32. 

Ulpian,  11. 
Ure,  137. 

Van  Buren,  342,  503. 
Van  der  Maeren,  475. 
Verri,  3t. 
Vethake,  40. 

Walker,  Amasa,  40,  41,  120,  349, 

360. 
Walker,  F.  A.,  40. 
Walker,  Secretary,  39,  503. 


INDEXES. 


537 


Washington,  337. 

Wayland,  40,  47,  120. 

Webster,  39,  139,  402,  437,  500,  501, 

502. 
Wells,  D.  A.,  40,  503. 
Whately,  23,  33,  34,  51,  53. 


"White,  Horace,  40. 

William  and  Mary,  280,  305,  i81. 

Wood,  William,  327. 

Wright,  Silas,  39. 

Xenophon,  3,  4 


INDEX  TO  LEGISLATION. 


Act  of  Navigation,  491. 

Act  making  monopolies  void,  114. 

Act  of  parliament  for  resumption, 

309. 
Additions  to  Morrill  tariff,  507. 
American  laws  of  coinage,  244. 
Anglo-Frencli    commercial    treaty, 

472. 
Athenian  regulations,  4. 
Athenian  duties,  468. 
Austrian  coinage,  267. 

Bank  act  of  1844,  30,  309,  310. 
Bank  of  England  law  of  bullion,  252. 
Bank  of  England  bills,  289,  304. 
Bank  of  North  America,  326. 
Bank  charter  defeated,  340. 
Bank  act  of  1863,  346. 
Bank  law  of  1870,  352,  356. 
Bank  of  Amsterdam,  277. 
Belgian  tariffs,  477. 
Bonaparte  overthrew  custom-houses, 

112. 
Bounties  and  restrictions,  12. 
Bounties  offered  by  England,  489. 
British  act  of  1663,  18. 
British  tariff  at  present,  471. 
Bullion  report,  30. 

Calhoun  tariff,  500. 
Calico  laws,  480. 
Census  figures,  458. 
Clay  tariff,  501. 
Cobden-Chevalier  treaty,  444. 
Coinage  laws  in  England  and  U.  S., 

263. 
Colbert's  legislation,  448. 
Colonial  system,  489. 
Commercial  treaty  of  1860,  36. 
Clompromise  tariif,  502. 
Confederation,  496. 
Congress,  its  printing  money,  323. 
Consols  of  '65,  '67,  '68,  '70,  404. 
Sontinental  bills,  289,  208. 


Continental  Congress  opened  ports 

505. 
Corn  laws,  486,  487. 
Copyrights  in  U.  S.,  116. 
Custom  duties  at  Athens,  9. 

Demand  notes,  282. 
Depreciation    of    greenbacks,   246, 
300. 

Earliest  modes  of  trade,  2. 

East  India  Company's  monopoly, 
114. 

Economics  and  morals  in  legislation, 
47. 

England  forbade  colonial  manufac- 
tures, 493. 

England  bade  colonies  buy  of  her, 
492. 

English  laws  of  land,  207. 

English  poor-rates,  208. 

English  laws  of  coinage,  243. 

English  tariff  taxes,  530. 

Exportables  affected  by  law,  466. 

Exports  of  corn  forbidden,  485. 

Federal  convention,  497. 

Fetters  reimposed,  113. 

Free  trade  established  in  England, 

30. 
French  government  bought  a  Murillo, 

100. 
French  tobacco  a  monopoly,  114. 
French  laws  of  land,  206. 
French  weights  and  measures,  247. 
French  assignats,  289,  295. 
French  commercial  companies,  294. 
French  mandats,  297. 

German  coinage,  267,  331. 
Government  in  relation  to  wages, 

155. 
Government  borrowing,  350. 
Greek  commercial  law.  9. 


538 


INDEXES. 


Guild  laws,  485. 

Hamilton  tariff,  498. 
Homer's  measure  of  value,  3. 

Income  tax,  England,  Germany,  U. 

S.,  522. 
India  Company's  charter,  17. 
Internal  revenue  simplified,  530. 
Irish  misgovernment,  156. 

Laws  forbidding  outflow  of  coin,  15, 

16. 
Laws  under  mercantile  system,  19, 

20,  476. 
Law's  bank,  293. 
"  Lawful  money,"  352. 
Legal  restrictions,  148. 
Legal  rate  of  interest,  England,  183. 
Legal  forms  of  money,  249. 
Legal  tenders,  282,  357. 
Legal  ratios  of  gold  to  silver,  333, 

335. 
Legalization  of  poor  money,  164. 
Legislation  as  affecting  prices,  88, 

534. 
Legislation  and  strikes,  166. 
Legislation  of  Moses,  302. 
"  Liberty  "  on  the  coins,  332. 
Lobbying,  461. 
Log-rolling  legislation,  332. 

Massachusetts  income  tax,  532. 
Mass.  usury  law,  319.     _ 
Mass.  bills  of  credit,  321. 
Mass.  redeemed  her  bills,  322. 
Mass.  issued  paper  money,  322. 
Mass.  legislation  in  1638,  463. 
Mercantile  system,  478. 
Milled  and  clipped  money,  280. 
Mint  laws,  288,  291,  329. 
Mint  laws,  1786,  U.  S.,  329. 
Mint  laws,  1792,  U.  S.,  329,  332. 
Mint  laws,  1873,  U.  S.,  333,  335. 
Mistakes  in  legislation,  65,  86. 
Morrill  tariff,  504. 

National  Bank  bill,  337. 
Navigation  laws,  468. 
New   national  bank  bills,  289,  302, 
358.  ' 

"New  tenor  "  law,  324. 

Old  silver  coinage  in  England,  278. 
Opium  in  British  India,  114. 
Order  in  Council,  496. 


Par  by  recent  law,  382. 

Parliament  laws  against  manufac- 
tures, 444. 

Patents  in  U.  S.,  116. 

Pennsylvania  tax  on  corporations, 
526. 

Pitt's  treaty,  1786,  33. 

Portuguese  wines,  479. 

Queen  Elizabeth's  monopolies,  114. 

Rate  of  interest  in  Holland,  183,  221. 
Recoinage  of  silver,  24. 
Reductions  from  Morrill  tariff,  509. 
Regulating  Bank  Act  of  1844,  310, 

378. 
Remission  of  silk  duties,  473. 
Rhode  Island  usury,  ^9. 
Roman  law,  11. 
Roman  taxes  and  duties,  12. 

Second  U.  S.  Bank,  341,  343. 

Seigniorage  on  coins,  261. 

Shroud-laws  in  England,  480. 

Silk-laws,  482. 

Slavery  in  Greece,  8. 

Slavery  wrong  and  ruinous,  46. 

South  Carolina  credit-scheme,  321. 

State  banks,  300. 

State  bank  bills  taxed,  401. 

State  tariff-laws,  496. 

Statute  book  Gt.  Britain,  22. 

Tariff  of  Abominations,  502. 
Tax  on  sales  in  Spain,  530. 
Turgot's  tax  on  land,  32. 

U.  S.  guarantees  the  bills,  349. 
U.  S.  dollar,  261. 
U.  S.  sells  land,  194. 

Vexatious  interference  with  indus- 
try, 112. 
Volume  of  currency,  401. 
Voted,  French  trade  a  nuisance,  481. 

Walker  tariff,  503. 

Whig  tariff,  503. 

Whiskey  taxes,  529. 

Wines  of  France,  479. 

Wood's  patent  pinchbeck,  327 

Woollens  under  present  legislation, 

461. 
Wool  tariff  of  1867,  513. 

Zollverein,  37,  38,  473. 


INDEXES. 


539 


INDEX  TO  DEFINITIONS  AND  PRINCIPLES. 


Absolute  and  relative  advantage, 

412. 
Abstinence  the  source  of  capital,  176. 
Advantages  of  consols,  404. 
Agreeableness  of  employments,  141. 
Agricultural  products  tend  to   rise, 

133. 
Agriculture  under  division  of  labor, 

133. 
Aims  and  Ends,  165. 
Ambiguities  in  the  word  wages,  217. 
Analysis  of  cost  of  labor,  214. 
Analysis  of  cost  of  capital,  220. 
Animals  only  for  motion,  136. 
Antagonism    between    capital    and 

labor,  163. 
Approximately  equal  farms,  204. 
Aristotle's  definitions,  6,  7,  8. 
Artificial  diversity  unprofitable,  446. 
A  science  defined,  42. 
.Association  and  individuality,  106. 
Attractive  power  of  money,  237. 
Auxiliaries  for  motion,  136. 
Average  of  prices,  466. 

Balance  of  trade,  483. 

Bank  balances  not  cash,  350. 

Bank  bills  defined,  370. 

Barter  in  relation  to  exchange,  230. 

Basis  of  a  promise,  403. 

Beaut}'  a  source  of  wealth,  472. 

Benefit  of  exchange  mutual,  477. 

Bills  of  exchange  explained,  376. 

Binary  system  in  coinage,  330. 

Blunders  in  economics  demoralize, 
479. 

Book  accounts  explained,  367. 

Borrowing  without  interest,  297. 

Broader  possible  sciences,  54. 

Bullion  theory,  14,  15,  16. 

Business  now  demands  less  cur- 
rency, 359. 

Buy  cheap,  sell  dear,  494. 

Capital  derived  and  defined,  168. 
Capital  distinguished  from  personal 

powers,  170. 
Capital  essential  to  laborers,  180. 
Capital  in  relation  to  wages,  150. 
Capital  created  by  credit,  373. 
farey's  law  of  distribution,  179. 
Carey's  central  principles,  41. 
Cash  circulation  currency,  286. 
Cash  credits  in  Scotland,  391. 


Catalactics,  34. 

Cents  and  pencil,  64. 

Certainty  of  forces  in  Pol.  Econ., 
103. 

Cheap  money  excludes  dearer,  334. 

Checks  in  rise  and  fall  of  coin,  259. 

Checks  defined,  382. 

Cicero's  distinctions,  10. 

Circulating  capital,  185. 

Circular  letters  of  credit,  384. 

Clearing-house  explained,  383. 

Clergyman's  vocation  sacred,  146. 

Coin  money  defined,  288. 

Collateral  securities  explained,  375. 

Commerce  is  exchange,  495. 

Commercial  crisis,  394 

"  Compete,"  and  its  principles,  418 

Competition  the  life  of  trade,  482. 

Condillac's  definition,  33. 

Constancy  of  emplo^anents,  144. 

Consumption  increases  as  taxes  de- 
crease, 448. 

Consumption  correlative  to  produc- 
tion, 120. 

Consumption,  consume,  consumer 
defined,  119. 

Convertible  money  tolerable,  285 

Cooperation,  165. 

Copyright  principles,  116. 

Cost  of  carriage,  421. 

Cost  of  lands,  195. 

Cost  of  production  explained, 210. 

Cost  of  labor  analyzed,  214. 

Cost  of  capital  analvzed,  220. 

Cottons  and  silks,  409,  423. 

Credits  should  be  taxed,  527. 

Credit-money  defined,  288. 

Credit  in  national  bank  bills,  350. 

Credit  exchanges  are  sensitive,  364. 

Credit  extinguished,  385,  397. 

Custom  in  relation  to  wages,  147. 

Debasing  the  standard,  244. 

Debts  and  credits  defined,  364. 
i  Deduction  defined,  43. 

Definition  of  first  school,  30. 
1  Definition  of  third  school,  31. 
I  Definition  of  money,  285. 
f  Definitions  of  the  Roman  law,  11. 
i  Definitions  of  Pol.  Econ.,  51. 
[  Demand  and  supply  in  wages,  150. 
j  Demand  defined,  96. 
i  Deposits  defined,  372. 
I  Desires,  efforts,  sales,  factions,  63 


54.0 


INDEXES. 


Dexterity  under  division  of   labor, 

130. 
Diamond  illustration,  70. 
Disadvantages  in  credit,  392. 
Distribution  of  precious  metals,  268. 
Diversity  of  natural  gifts,  105. 
Diversity  of  advantage,  106. 
Diversity  of  industry  natural,  444. 
Diversity  of  national  gifts,  408. 
Division  of  labor,  129. 
Division  of  labor  limited,  133. 
Driblets  of  business  done  by  money, 

360. 
Dwarfing  the  powers,  131. 

Easiness  of  employments,  142. 
Economics,  34. 

Economy  political  or  social,  47. 
Economy  and  morals  independent, 

47. 
Elimination   of  utility  from  value, 

85. 
English  laws  of  land,  207. 
Equalization  of  demand  and  supply, 

99. 
Equation  of  international  demand, 

415. 
Estimations  in  value,  72. 
Ethics  defined,  46. 
Exchange  independent  of  national 

boundaries,  434. 
Exchangeability  (Eryxias),  8. 
Exchangeability  (Greeks   and    Ro- 
mans), 12. 
Exemptions  from  taxes,  532. 
Elxperience  in  Pol.  Econ.,  44. 
Exportables    depressed    by    tariffs, 

467. 

Faith  in  money  easily  shaken,  299. 

Fall  of  prices,  397. 

Farmers  defrauded  by  high  duties, 
467. 

Farmers  under  taxation,  534. 

Fee  simple  in  lands,  203. 

Feigned  cases  in  Pol.  Econ.,  44. 

Fixed  capital,  186. 

Fluency  of  gold  and  silver,  256. 

Foreign  trade  same  in  principle  as 
domestic,  411. 

Free  trade  defined,  431. 

Free  materials  important,  513. 

Free  importation  best  for  home  pro- 
duction, 474. 

Free  lists  delusive,  507. 

F-ee  discounts  still  panics,  398. 


Freedom,  association,  invention,  109. 

French  laws  of  land,  206. 

Gains  in  exchange,  50,  105. 

Gains  and  rights,  424. 

Gains  the   source   and    measure  of 

taxes,  518,  525. 
General  gluts  impossible,  126. 
Generalization  explained,  44. 
Gifts  should  not  be  taxed,  522. 
Give  for  get,  449. 
Giving  distinct  from  selling,  471. 
Gluts  possible  in   certain   services, 

128. 
Go  and  pay,  367. 

God's  gifts  in  relation  to  value,  86. 
Gold  is  the  best  money,  249. 
Good  theory  good  in  practice,  433. 
Government  no  right  to  redistribute, 

459. 
Government  may  act  on  wages,  155. 
Government  cannot  create  value,  287. 
Government  gets  nothing  from  some 

tariff-taxes,  508. 
Guilds  in  relation  to  wages,  148. 

Hamilton's  points  in  1780,  325. 
High  wages  not  high  cost  of  labor, 

219. 
High  duties  hostile  to  credit,  500. 
Hoeing  and  haying,  65. 
House-tax  proper,  525,  532. 
Hume's  points,  25,  26. 

Idea  of  John  Law,  293. 
Implements  the  gift  of  capital,  137. 
Imports  buy  exports,  434. 
Improvements  benefit  all,  419. 
Improvements  in  relation  to  value, 

125. 
Income  taxes  best  of  all,  523. 
Independence,  453. 
Induction  defined,  43. 
Industry  ceases  when   unprofitable, 

489. 
Inertia  of  value,  255. 
Inferior  money  expels  superior,  275. 
Inflation  of  currency  or  prices,  218. 
Instincts   of  men   are  for  freedom. 

505. 
Interest  springs  from  abstinence,  315. 
Invention  under  division  of  labor 

130. 
Irish  laws  of  land,  208. 
Irksome  work  under  division  of  labor 

131. 


INDEXES. 


541 


Irredeemable  paper  expels  coin,  281. 
Irredeemable  money  bad  for  labor- 
ers, 402. 

Jealousy  of  laborers  towards  em- 
ployers, 166. 
Joint' stock  companies,  386. 
Journeymen  and  master,  81. 
Jurisdiction  of  Pol.  Econ.,  76. 

Labor  defined,  131. 
Labor  but  moves  things,  134. 
Labor  a  result  of  expected  value,  70. 
Labor  not  a  source  of  value,  69. 
Laborers  essential  to  capital,  182. 
Land  in  the  law  of  its  value,  189. 
Lands  under  depreciated   currency, 

196. 
Language  and  its  illusions,  79. 
Law    of    diminishing    return    from 

lands,  196. 
Law  of  improvements  in  agriculture, 

199. 
Law  of  production,  121,  123. 
Law  of  population,  157. 
Law  of  international  exchange,  381. 
Law  of  exportation,  257. 
Law  of  depreciation,  341. 
Leavings  of  wages  are  profits,  184. 
Legal  restrictions  affect  wages,  148. 
Let  alone,  167. 

Life  insurance  companies,  387. 
Limits  of  value  in  efforts,  92. 
Limits  of  value  in  desires,  94. 
Limits  of  credit,  373. 
Locke's  distinctions,  23,  24. 
Low  duties  make  large  revenues,  430. 
Low  wages  countries  fear  others,  459. 
Low  taxes  best,  529. 

Machinery  in  profits  and  prices,  224. 

Machinery,  its  effect  on  wages,  225. 

Malthusianism,  157. 

Man  not  a  machine,  165. 

Manufacturers  have  to  pay  duties, 
461. 

Manufacturers  not  benefited  by  pro- 
tection, 439. 

Manufacturing  for  the  product,  not 
the  process,  441. 

Market  rate  explained,  97. 

Materials  more  important  than  wages, 
458. 

Matter  in  relation  to  value,  97. 

Means  of  livelihood  lessened,  132. 

Measures  of  value,  90. 


Money  acts  on  prices,  395. 
Money,  its  rise  in  convenience,  231. 
Money,  a  generalized  agent,  233. 
Money  as  a  medium,  234,  239. 
Money  as  a  measure,  241. 
Money  an  implement,  344. 
Monopolies  defined  and  condemned, 

113. 
Moral  sciences  defined,  45. 

National  debt  a  mortgage  and  bur- 
den, 398. 
Natural  monopol}',  140. 
No  other  money  but  coin,  311. 

Obstacles  vield  under  exchange, 

111. 
Operatives  classed,  131. 
Order  of  occupation  in  lands,  198. 
Origin  of  capital,  171. 

Par  between  England  and  U.   S. 

382. 
Par  of  international  exchange,  380. 
Past,  present,  and  future,  in  values, 

393. 
Pay  as  you  go,  367. 
Pencil  and  cents,  56. 
Physical  labor  defined,  135. 
Pins,  an  illustration,  129. 
Plato's  distinctions,  5. 
Points  of  chief  struggle  in  history, 

117. 
Points  and  definitions  in  Bastiat,  35, 

36. 
Pol.  Econ.  defined,  1. 
Poll-tax  doubtful,  520. 
Poor  money  hostile  to  laborers,  164. 
Position  of  Roman  moralists,  10. 
Positions  of  Adam  Smith,  28,  29. 
Power  is  motion,  137. 
Pressure  of  special  interests,  510. 
Price  defined,  87. 

Principles  tending  to  exchange,  45. 
Principles  varying  wages,  141. 
Principles  in  cost  of  labor,  456. 
Principles  of  taxation,  515,  520. 
Probability  of  success  affects,  146. 
Product,  production,  producer,  118. 
Promissory  explained,  368. 
Property  defined,  517. 
Protection  defined,  432. 
Protection  defeats  itself,  465. 
Protection  tariffs,  428. 
Protection  and  revenue  incompatible, 

429. 


642 


INDEXES. 


Protection  hurts  manufactures,  443. 
Protection  is  finesse,  460. 
Public  opinion  affects  Avages,  156. 
Purchase  by  exports,  cheap  purchase, 
418. 

Quantity  of  gold  and  silver,  254. 
Quantity  of  money  required,  240. 
Quesnay's  points,  32. 
Quick  sales  and  small  profits,  392. 
Quotient  in  relation  to  wages,  152. 

Rapidity  of  circulation,  336. 
Raw  materials  approximate  the  price 

of  furnished  products,  220. 
Relative  cost  in  trade  for  gold,  451. 

Releases  from  debt,  389.  ^ 

Remedies  for  low  wages,  153. 
Remuneration  of  labor,  139. 
Rent  of  lands,  200. 
Reproduction  in  capital,  175. 
Revenue  tariffs,  427. 
Ricardo's  law  of  rent,  201. 
Right  to  contract  debts,  400. 
Right  of  exchange,  110. 
Rise  of  prices  under  paper  monev, 

284. 
Rise  or  fall  of  demand,  98. 
Rise  of  prices,  396. 
Rising  rate  of    interest  sometimes 

useful,  354. 

Savings-banks,  386. 

Self  regulation  of  coins,  261. 

Self-interest  enlightened,  470. 

Silks  and  cottons,  409,  423. 

Silver  a  good  money,  251. 

Simple  taxes  best,  529. 

Six  cases  of  value,  66,  69. 

Six  grounds  of  superiority  in  coin, 

Skill,  how  developed,  452. 
Smuggling  thrives  on  high  duties, 
465.  ' 

Society,  an  organization,  48. 
Society,  a  hive  of  buyers,  104. 
Speculation  defined,  394. 
Spirit  of  monopolists,  115. 
Standard  of  value,  37. 
Strikes  in  relation  to  wages,  158. 
Success  through  tact  and  industry, 

Superintendence,  457. 

Superiority  at  different  points,  407. 

Supply  defined.  96. 

Supply  as  affecting  value,  99. 


Supply  non-augmentable,  100. 
Supply  easily  augmentable,  101. 
Supply  augmentable  with  difficulty, 
101. 

Tailor  and  blacksmith,  108. 

Tariff  defined,  126. 

Tax  on  sales  discourages,  530. 

Taxes    should    not  disturb   prices, 
523. 

Taxes  diffuse  themselves  somewhat, 
533. 

Temperance,  457. 

Tendencv  in  inventions  to  common 
right,  124. 

Test  of  men  and  methods,  406. 

Thing-dollar  governs  denomination- 
dollar,  290. 

Three  kinds  of  exchangeable  things, 
66. 

Time  saved  in  division  of    labor 
130 

Trade  for  gold,  450. 

Trades-unions  affect  wages,  149. 

Trust  affects  wages,  145. 

Underselling,  413. 

Uniformity    of    value    in    money, 

248. 
Uniform  rise  or  fall  of  wages,  223. 
Universal  coinage,  266. 
Universal  law  of  value,  96. 
Universal  rise  of  prices,  88. 
Usury  laws  wrong,  312. 
Utility  distinguished    from  value, 

83. 
Utility  in  lands,  191. 

Value  always  relative,  53,  61. 

Value  in  lands,  190. 

Value  analyzed,  56. 

Value  defined,  66. 

Value   of    gold   in   silver  variable, 

355. 
Values  cannot  generally  rise,  89. 
Verification  defined,  43. 
Vicious    principle    in   the   bank   of 

England,  306. 
Violin-maker  an  illustration,  138. 

Wages  one  third  of  materials,  458. 
Wages  best  under  freedom,  436. 
Wages-fund  a  dividend.  152. 
War  destroys  capital,  187. 
Waste  of  protection,  462. 
Waste  of  material,  130. 


INDEXES. 


543 


Wealth  a  bad  scientific  term,  52. 
Wear  and  tear  of  coins,  274. 
Weights    and    measures   (French), 
247. 


Wholesale  and  retail,  131. 
Widest  surface,  surest  source,  486, 
Won't  buy,  can't  sell,  443. 
Worth  of  coin  in  exchange,  271. 


(5^ 


14  DAY  USE 

RETURN  TO  DESK  FROM  WHICH  BORROWED 

LOAN  DEPT. 

This  book  is  due  on  the  last  date  stamped  below,  or 

on  the  date  to  which  renewed. 

Renewed  books  are  subject  to  immediate  recall. 


JULlTIWSil 


Or-. 


M  8   -67  5  PM 


LOAN  DEPT 


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ii"* ' »- 


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5 


"OSW 


OfCMff' 


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OCT  1  2  200^ 


LD  21A-60m-7,'66 

(G4427-10)  17P.B 


General  Li 
University  of  C 

Bcrkele 


YB  60675 
U.C.  BERKELEY  UBRARII 

IIIIIII 

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S9S993 


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